One of the perennial problems facing plan administrators is how to handle “missing” participants. While many participants hound plan administrators to receive these benefits from their plan, there are many participants who terminate employment and just seem to vanish.
Sometimes the benefits for the “missing” participants are negligible, but many times the amounts can be substantial.
Despite the propensity of participants to go missing, the fiduciaries of the plan nonetheless have a duty to make sure that participants receive their benefits.
The Department of Labor (DOL) recently issued a Field Assistance Bulletin No. 2014-01 (FAB 2014-01) which provides some guidance on how plan administrators should address missing participants. Technically, FAB 2014-01 discusses only terminated defined contribution plans, but the concepts discussed in it may be illustrative on how to deal with missing participants for ongoing plans.
How to address missing participants
When dealing with missing participants, the DOL suggests that fiduciaries should take all the following steps:
- Send notice by certified mail.
- Check all related plan and employer records for address or contact information. The health plan records for example may have useful information.
- Check with the beneficiary designated by the missing participants. The beneficiary may know how to contact the participant.
- Use free electronic search tools. Internet tools such as public records databases for mortgage loans, obituaries, and social media may provide clues to track down the missing participant.
If these steps fail to turn up the missing participant the fiduciary still has a duty of prudence and loyalty that may require the fiduciary to determine if additional steps are appropriate. The DOL has indicated that the fiduciary can consider the size of the participant’s benefit and the cost of further searches in making a decision. The additional steps may include services that involve charges such as:
- Internet search
- Communal location services
- Credit reporting agencies
- Information brokers
- Investigation databases
What to do if you can’t find the missing participant
The DOL suggests that if the participant cannot be located and the plan is in a position to make a distribution, such as when the plan is terminating or the account benefit is $5,000 or less, the plan may rollover to an Individual Retirement Account. If it is not possible to set up an IRA, the DOL has indicated that in the case of a terminated plan, at least, the plan fiduciary may open an interest bearing federally insured bank account in the name of the participant or transfer the benefit to the state unclaimed property fund.
As it has stated in the past, the DOL emphasizes doing a 100% income tax withholding if the benefit is not a permissible option.
The DOL’s guidance is helpful and provides some practical approaches to dealing with missing participants. Care, of course, must be taken to follow an approach that is designed to ensure the participant or beneficiary receives their benefit.