How to Handle Missing or Lost Retirement Plan Participants

Missing or lost retirement plan participants has been an issue for employers for many years with very limited concrete guidance from the regulatory agencies overseeing employer plans. This silence changed a couple of years ago when the Department of Labor (DOL) put forth some limited guidance outlining various steps employers should take in order to fulfill their fiduciary duty related to these legacy participants. The guidance was followed-up by a new field initiative reflected in the DOL investigation closeout letter comments. Specifically, citing potential fiduciary duty breaches under the Employee Retirement Income Security Act (ERISA) of 1974 for failure to have a process in place for locating former participants.

The inability to locate former plan participants creates a host of problems for plan sponsors, including:

• Unnecessary administrative issues, such a stale checks
• Unnecessary participant fees
• Failure to meet the various statutory notice requirements
• Inability to properly pay plan benefits, either lump sum or periodic payments
• Failure to properly process required minimum distributions
• Delayed plan terminations

These problems are not solely administrative in nature. They can lead to plan operational failures as well as potential ERISA violations.

The DOL’s Employee Benefits Security Administration (EBSA) recently provided the most robust guidance yet on this issue for sponsors of defined contribution and defined benefit plans.

Best Practices

As noted above, the DOL has increasingly focused on the missing participant issue during their field investigations. They learned that many plan sponsors have little or no process in place to either keep track of existing terminated employees or track them down once their contact information becomes stale. The list of missing participants just seems to increase with no game plan in place as to how to reduce it. EBSA’s best practices are designed to help locate missing participants as well as help employers satisfy their fiduciary duty related to this issue. It should be noted that the responsibility to keep current contact information for participants rests with the employer, not the former participant. This catches many employers by surprise as they assume it is the employee’s responsibility. Additionally, we know anecdotally that employers do not have great success using fee for service locater services. Plan sponsors have indicated that their most productive resource has been social media, however, the process is fairly time-consuming.

Arguably the most important takeaway from the best practices is that the process and documenting the process is ultimately more important than actually finding the missing participants. Employers should follow the roadmap set forth by the DOL and document how they have done so.

Defined Benefit Plan Terminated Vested Participants

Benefits that are due to terminated participants of defined benefit plans are of particular concern to the DOL. These participants in particular are at risk of being “lost” due to the fact that oftentimes benefit payments do not commence until many years after the employee left the employer. Compliance Assistance Release 2021-01 details the investigative framework to be used by EBSA’s regional offices when conducting investigations under the Terminated Vested Participants Project. Additionally, this provides guidance to plan sponsors on how to best address this issue to avoid fiduciary missteps. As with the best practices guidance, the release clearly states that the impetus is on the employer to make sure participants understand the importance of keeping their contact information up to date and being proactive when checks are returned.

Terminating Defined Contribution Plans

Missing or lost participants is a long-standing issue for terminating defined contribution plans with very little recourse that satisfies the regulatory agencies. Field Assistance Bulletin 2021-01 provides details on how employers can utilize the PBGC’s missing participant program and satisfy their fiduciary obligation.

Employers are strongly encouraged to follow this recent guidance and document the steps they take to do so. In most cases, there will be additional work initially but this should lead to less work on an ongoing basis once the proper internal processes are in place.

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