PBGC’s Overhaul of the Missing Participant Program
PBGC has completely overhauled their missing participant program. The new rules are effective for plans that terminate on or after Jan. 1, 2018. Unfortunately, if you are dealing with a missing participant in a plan that terminated before that date, you will have to comply with the old rules.
The starting place to learn the new rules is to visit https://www.pbgc.gov/prac/missing-participants-program.
There are four categories under the new program: PBGC-insured single-employer plans, defined contribution plans, small professional services DB plans not covered by PBGC, and PBGG-insured multiemployer plans. The focus of this article will be on single-employer DB plans covered by PBGC for participants whose benefits have never been in pay status.
Missing Participant Defined
The definition of who is missing is a bit more specific under the new rules. There are three definitions a participant can fall under to use the PBGC’s missing participant program:
1. The participant’s location is not known — they are “unlocatable.” The plan must follow the rules for diligent search.
2. The participant is subject to the plan’s mandatory cash-out provisions and did not return paperwork (unresponsive).
3. The participant does not accept their lump sum payment or did not cash their check, voluntary or mandatory (unresponsive).
If a participant’s location is known but is unresponsive and their benefit is above the plan’s cash-out limit, they are not eligible to use the missing participant program. In this situation, an annuity will need to be purchased with all optional forms preserved.
The new forms to be filed for missing participants is the MP 100 and schedules. There are separate schedules for those missing participants who’ve had annuities purchased (Schedule A) and those whose benefits are being sent to PBGC (Schedule B). PBGC now offers an alternative to completing individual schedules for each missing participant by allowing all the missing participant data to be transmitted in a single excel spreadsheet. This can be found on the PBGC website, and it’s called “Form-mp100-template.” That’s pretty neat.
While the old rules did not have any accrued benefit reported when sending funds for missing participants to PBGC, the Schedule B reports benefits valued at ages 55-65 and at NRD if later. I assume that if a participant’s retirement date is age 62, the same benefit amount is entered into the Schedule B for 62-65, based on the explanation of the calculation below.
In general, there are three categories to calculate the Benefit Transfer Amount for a missing participant not in pay status:
1. De minimis. If the single sum actuarial equivalent of the participant’s benefit (including any missed payments) using the plan lump sum assumptions is under the statutory maximum (currently $5,000), then the missing participant’s Benefit Transfer Amount is equal to that single sum.
2. Not de minimis; a single sum payment cannot be elected. If the plan lump sum is not de minimis and a single sum is not available, then the missing participant’s Benefit Transfer Amount is the present value of the distributee’s accrued benefit determined using PBGC missing participants assumptions plus missed payments.
3. Not de minimis; a single sum payment can be elected. The missing participant’s Benefit Transfer Amount is the greater of the amounts under (1) or (2) above.
There is a $35 fee added to any benefit transfer amount of more than $250.
The most interesting thing about the new rules? You don’t need to program a spreadsheet to do the MP calculations, although I’m sure some of you may do it anyway. PBGC has provided a spreadsheet that you can populate with some basic data and it will calculate the single sum under the PBGC missing participant rules.
There are two categories in their calculator workbook. The first is for those whose Benefit Determination Date (BDD) is before NRD. On this page you will enter some participant data, including the monthly benefit payable at PBGC’s XRA (calculated by their spreadsheet and never below 55), and it returns the single sum value.
The second category is for those who are past NRD as of the BDD. It doesn’t seem to matter whether your plan does or does not allow retroactive annuity starting dates. You will enter the accrued benefit at NRD (or when accruals cease, if later) and the workbook will return the single sum value. For this second category, a second calculation is required to add the accumulated missed or back annuity payments with interest.
You can find this present value spreadsheet by going to PBGC and searching for “2018 Category 2 PV Calculator.” All 2018 calculations will use the same interest and mortality assumptions. Mortality is based on the 2018 PBGC published 50/50 blend table, and the interest rates are the January 2018 Select and Ultimate rates (2.39% / 2.60%) used to determine lump sums on a termination basis under 4044. The missing participant interest rate used to calculate the missed back payments is the applicable federal mid-term rates compounded monthly.
PBGC has posted an example of the interest calculation for missed payments (in pdf format) on their website called “back_payment_accumulation_example.” The back payment accumulated amount is added to the single sum calculated in the Category 2 PV calculator, and the total is the Benefit Transfer Amount.
The filing and payment for missing participants is due the same date as the 501, 30 days after last distribution date. But like the 501, no penalty interest accrues if transferred within 90 days. If the payment to PBGC occurs more than 90 days after the last distribution, there will be additional interest owed using the same “Missing Participant Interest Rate” as above.
Back in 2013 I did an outline on the PBGC’s missing participant program. To this day I get phone calls about that outline from actuaries dealing with a missing participant for the first time. While it is little time consuming to find all the pieces and put them together, these new rules are much less complicated — and a welcome change.
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