DOL: New Guidance on Locating Missing Participants

A Four-step Process for Plan Fiduciaries

On August 14, the Department of Labor updated its decade-old guidance on addressing the ‘missing participant’ issue when terminating retirement plans. With the IRS and Social Security Administration stopping access to their letter forwarding programs for retirement plan asset distribution purposes, this guidance was much appreciated by the retirement community as it laid out a process for the search methods. While this guidance does not address active plans, we believe that its principles may be applied for locating missing participants in non-terminating plans.
Why It’s Important
It’s a fiduciary duty. The DOL has indicated on multiple occasions that it is a plan fiduciary’s responsibility to make a reasonable effort to locate missing participants and/or beneficiaries.
New Guidance
Field Assistance Bulletin (“FAB”) 2014-01 outlined four steps that must always be taken:

  1. Send a notice via certified mail. See example notice provided by the DOL.
  2. Check other plans and employer records: another plan, e.g. group health plan, may have more up-to-date contact information.
  3. Contact the missing participant’s beneficiary: individual’s spouse, children, or other designee may have recent information on the missing participant’s whereabouts. If privacy is a concern, request that the beneficiary contact or forward a letter to the individual.
  4. Use free internet search tools: if prior steps do not offer a desired outcome, use free internet search tools (search engines, public records, or social media) to attempt to locate the missing participant.

What If No Luck?
If the four-step process does not result in finding the missing participant, then the plan fiduciary must make a call whether additional search steps, including commercial locator services and credit reporting agencies, are appropriate based on account size and the amount of additional expense. Note that reasonable expenses associated with the search may be charged to participant accounts.
If the missing participant has not been found, then plan fiduciary needs to choose a distribution method:

  1. Transfer into an IRA in the name of the participant, a.k.a. a default rollover IRA. This is the DOL’s preferred method; the Agency provided a fiduciary safe harbor for selection of investment products for this purpose.
  2. Deposit assets into an interest-bearing federally insured bank account in the name of the participant.
  3. Escheat to the state: transfer the property to the state’s unclaimed property fund.

The DOL reiterated prior guidance that the 100% income tax withholding, which in essence is transferring the missing participant’s account balance to the IRS against that participant’s tax liability, is not an acceptable distribution method and would result in fiduciary breach.
More to Come
The DOL noted that The Pension Benefit Guarantee Corporation, PBGC, is currently assessing the possibility of opening its defined benefit missing participant program to defined contribution plans; it is DOL’s intention to reevaluate this four-step process once PBGC comes up with a recommendation. PBGC is expected to issue the proposed regulations on the matter some time at the end of 2014.
Steps to Take

  • Review the steps historically taken to locate missing participants. Adjust them to conform to the latest guidance.
  • Document your search. Consider using this checklist to document your attempts to locate missing participants.
  • Stay tuned: we are monitoring this issue. Especially in light of the anticipated PBGC recommendation on the possibility of opening its missing participant program to defined contribution plans.