Retirement plan participants can go missing on occasion. This is an issue for defined contribution (DC) plan sponsors as smaller or inactive plan balances may decrease their economies of scale, increase risk to the plan, and complicate the fiduciary’s obligation to provide ongoing required notices. It is also an issue for participants who may be missing part of their retirement benefits.
Participants can go missing following separation from service, address changes, name changes, or a variety of other circumstances. This group can include either participants whose mail is returned as undeliverable or those with outstanding stale checks (e.g., minimum required distributions that are forced out of the plan).
Beginning in 2017, the U.S. Department of Labor (DOL) implemented the Terminated Vested Participant Project, which focused audit efforts on missing participant issues. In fiscal year 2020, the Employee Benefits Security Administration (EBSA) closed 1,122 civil investigations, with 67% of those audits resulting in monetary results for plans or other corrective action — $1.5 billion tied directly to missing participant enforcement. And while the DOL has issued missing participant guidance for terminating DC plans (e.g., FAB 2014-01), until now there has been little regulatory guidance on what steps ongoing plans should take. In some cases, the plan document can provide guidance on how to handle these situations, but in general direction has been lacking.
In response to this gap, the EBSA released guidance earlier this year. Recommended steps include:
- Requesting participants confirm their contact information regularly (e.g., on the DC plan’s website or company intranet)
- Including a reminder to update contact information on recurring communications
- Flagging undeliverable mail/email and uncashed checks for follow-up
- Conducting missing participant searches; reviewing other employer records (e.g., health plan or payroll records); using free online search engines, public records databases, and social media; employing a commercial locator service, a credit-reporting agency, or a proprietary internet search tool to locate individuals
- Using government programs (e.g., U.S. Postal Service certified mail to the last known mailing address, Social Security Death Index)
- Attempting contact via other available means such as email addresses, telephone and text numbers, or contacting beneficiaries or the employee’s emergency contacts
- For unionized employees, reaching out to the union’s local offices and through union member communications to find missing retirees
Importantly, the guidance package noted that plan fiduciaries can consider the cost of the search and the size of the participant’s account balance. And, as with all plan management tasks, documenting procedures and actions is key to good plan governance.
If a participant cannot be located, the plan sponsor has the option of forfeiting those accounts (which can be reinstated should the participants be found) or escheating to the state, depending on the terms of the plan document.
Plan sponsors should work with their recordkeeping partners to understand their ability to regularly audit plan census information and to search for missing participants. Determining which steps to take should incorporate a review of ERISA’s fiduciary duties, including the duties to act with care, skill, prudence, and diligence, along with the privacy concerns of social media or beneficiary outreach.