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Lost Plan Participants Raise Broader Concerns

Lost pension plan participants certainly can complicate plan administration. But they can do more than that, argues benefits attorney Carol Buckmann — they also pose a risk of fresh attention from the federal government.

In “Vanished into Thin Air? Lost Participants Create Pension Plan Audit Risk,” Carol Buckmann of Cohen Buckmann cautions that not keeping track of participants risks greater federal scrutiny because it raises broader fiduciary concerns.

Plan language may require that small benefit payments be paid automatically when an employee ends his or her employment and that benefits begin at normal retirement age. But, Buckmann writes, a plan runs a variety of risks:

  • violation of Internal Revenue Code Section 401(a)(9) if it does not make required minimum distributions;

  • inadvertently inviting attention for failing to keep track of former participants;

  • breaching fiduciary duties if it fails to find missing participants in terminating plans;

  • raising compliance and self-dealing issues if funds are forfeited without the employer having made reasonable efforts to find missing participants; and

  • raising issues in Forms 5500 if people owed benefits are not found.

And keeping track does not devolve solely on the participants, Buckmann says. “Plan fiduciaries should resist the temptation to assume that this is only the participant’s problem because fiduciaries have an obligation to use reasonable efforts to locate lost participants and to see that un-cashed checks go to the rightful owner of the funds. They should not wait until a major event such as a plan termination to do a data cleanup and track people down,” she writes.

Buckmann suggests that a plan can take the following steps to lessen the risk of federal attention through these steps:

  • the first time that a check or notice is returned as undeliverable, use reliable internet services and check with beneficiaries to try and locate those individuals;

  • check the Social Security death files;

  • describe in the plan document or written policies the procedures for dealing with lost participants and uncashed checks, and follow them;

  • spell out in the plan when a vested benefit will be forfeited if the payee can’t be located and how related issues will be handled;

  • emphasize in employee termination materials that the employer must be notified promptly of any change in address; and

  • make sure that the plan timely applies its automatic rollover provisions.

Following these steps may not guarantee complete success in tracking down missing former employees, says Buckmann, but they at least demonstrate that an employer and plan are working to fulfill their fiduciary responsibilities.