EBSA Clarifies Obligations to Missing Retirement Plan Participants

Document steps to locate former employees not receiving distributions

Stephen Miller, CEBS By Stephen Miller, CEBS January 20, 2021
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EBSA Clarifies Obligations to Missing Retirement Plan Participants

Retirement plan fiduciaries can get help to locate and distribute retirement benefits to missing plan participants under guidance that the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) issued on Jan. 12.

The new guidance for complying with the Employee Retirement Income Security Act (ERISA) consists of three parts:

  • Compliance Assistance Release 2021-01 outlines the general investigative approach that will guide enforcement actions by EBSA's regional offices under the Terminated Vested Participants Project, which can aid voluntary compliance efforts by plan fiduciaries.
  • Field Assistance Bulletin 2021-01 authorizes fiduciaries of terminating 401(k)-type plans to use the Public Benefit Guaranty Corp. (PBGC) Defined Contribution Missing Participants Program to hold missing or nonresponsive participants' account balances, and to help those participants find and receive their benefits.

The new guidance "reflects our ongoing commitment to help plan fiduciaries ensure that their plan participants and beneficiaries receive the retirement benefits that they worked so hard to earn," said Jeanne Klinefelter Wilson, principal deputy assistant secretary of labor for EBSA. "In fiscal year 2020 alone, EBSA's investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion," she noted.

Earlier efforts by EBSA "resulted in the opening of investigations against trustees, plan administrators and third-party administrators" over missing plan participants, Paul Friedman, an attorney in the White Plains, N.Y., office of law firm Jackson Lewis, noted in 2019. Investigations by EBSA have been cumbersome because of a lack of guidance, "thereby requiring an enormous amount of work by the plan and forcing the plan to incur professional fees." 

The new guidance is intended to clarify EBSA's investigative procedures, helping plan sponsors to comply with their obligations toward former employees who are vested plan participants.

According to Mike Barry, a senior consultant at retirement plan advisory firm October Three, "DOL's aim is, generally, to correct errors in processes and provide remedies for participants negatively affected, rather than to cite fiduciaries for ERISA violations."

Best Practices Highlighted

EBSA's best practices guidance lists several "red flags" that indicate a plan may have a problem with missing or nonresponsive participants, such as:

  • More than a small number of former employees who are vested plan participants, and who have reached normal retirement age, have not started receiving their retirement plan benefits.
  • A review of participant records shows missing, inaccurate or incomplete contact information for former employees who are vested plan participants. This includes incorrect or out-of-date mail, e-mail and other contact information, partial Social Security numbers, missing birthdates, and missing information about spouses.

Plan sponsors should also look for, and take steps to correct, the following red flags:

  • The absence of sound policies and procedures for handling returned mail marked "return to sender," "wrong address" or "addressee unknown," as well as undeliverable e-mail.
  • The absence of sound policies and procedures for handling uncashed checks, indicated by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed checks (which typically have not been cashed within six months and which banks therefore may refuse to honor), or failure to reclaim stale uncashed check funds in distribution accounts.

"While the plan may not possess current contact information, it is possible that the employer's payroll records or the records maintained by another of the employer's plans, such as a group health plan, may have more up-to-date information," EBSA advised. "Checking with designated plan beneficiaries (e.g., spouse, children) and the employee's emergency contacts (in the employer's records) for updated contact information" can also be helpful. If there are privacy concerns, ask the designated beneficiary or emergency contact to forward a letter to the missing participant.

Another tip is to consider using free online search engines, public records databases (such as those for licenses, mortgages and real estate taxes), obituaries and social media to locate individuals.

Employers' Oversight Responsibilities

"Although plan fiduciaries may delegate record-keeping, participant communication and missing participant searches to third-party administrators, plan fiduciaries must ensure that the delegate has established and is following sound procedures," advised Kimberly S. Couch, a partner at law firm Verrill in Portland, Maine. "Plan fiduciaries are ultimately responsible for ensuring benefits are paid accurately and timely under the retirement plan."

"Use of the PBGC Missing Participants Program does not relieve plan fiduciaries [for terminating 401(k) plans] from the duty to diligently search for missing participants and beneficiaries before assets are distributed," advised law firm Proskauer.

Sponsors typically interact with the DOL on missing-participant issues in the context of an audit, Barry noted. "Obviously, demonstration that a sponsor has taken DOL's suggestions—for example, in its description of best practices—seriously will help in the audit process," he said. "But sponsors may find some of DOL's suggestions impractical or may have developed more-effective ways of tracking participants."

Prior IRS Guidance on Missing Participants

In October 2017, the IRS issued its own administrative enforcement guidance addressing missing retirement plan participants.

To avoid a challenge by IRS examiners against a defined contribution plan for failing to make a required minimum distribution (RMD) to a participant (which must now start at age 72, up from age 70 1/2 when the guidance was issued), plan fiduciaries must be able to show they have taken the following three steps, the IRS said:

  • Searched plan and related plan, sponsor and publicly available records or directories for alternative contact information.
  • Used methods such as engaging a commercial locator service or a credit reporting agency, or used a proprietary Internet search tool for locating individuals.
  • Attempted contact via U.S. Postal Service certified mail to the last known mailing address and through appropriate means for any address or contact information (including e-mail addresses and telephone numbers).

If a plan has not completed these steps, IRS examiners may challenge the plan for violating RMD standards.



Related SHRM Articles:

EBSA Missing Participant Investigations Triggered by Failure to Take Distributions, SHRM Online, June 2019

Keep Track of 401(k) Participants So They Don't Go Missing, SHRM Online, April 2018

DOL Is Stepping Up 'Missing Participant' Retirement Plan Audits, SHRM Online, October 2017
 

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