Tips for Locating Missing Participants
Think it’s impossible to still encounter issues with missing participants in an age in which digital footprints abound? It is. In “I’ll Be Missing You: Tips for Locating Missing Participants,” an article that appeared in the Winter 2016 issue of Plan Consultant magazine, Quarles & Brady LLP partner Charlene M. Kelly describes the circumstances in which missing participants pose problems for plan sponsors of defined contribution plans, and the fiduciary steps that can be taken in locating them.
A participant is generally considered missing when use of the address the participant supplied — and that is reflected in the plan records as the most recent mailing address — results in returned mail. Many plans (in the plan documents or their summary plan descriptions) include language informing participants that they are responsible for notifying the applicable plan of current contact information. Such language does not, however, relieve the plan sponsor from his or her responsibility to take reasonable steps to locate a participant when necessary.
Kelly outlines the steps the Department of Labor (DOL) requires be taken to find a missing participant when a DC plan is terminated. The DOL in Field Assistance Bulletin (FAB) 2014-01 requires:
- checking the employer’s documentation related to other plans and employee records;
- checking with a designated beneficiary; and
- consulting free electronic search tools.
The DOL also indicates that a plan fiduciary must make a reasonable effort to locate all missing participants.
And what constitutes a reasonable effort? FAB 2014-01 states that additional steps may be required to locate a participant with a large account balance, while keeping in mind that a fiduciary must defray reasonable expenses of plan administration. Use of commercial locator services, credit reporting agencies and fee-based databases are possible avenues, Kelly suggests.
What happens if a terminating plan exhausted reasonable available options for finding a missing participant, and is ready to distribute funds? DOL Reg. §2550.404a-3 provides safe harbor distribution options. But as a condition of using the safe harbor, the participant must have been notified about the available distribution options. For a missing participant whom the plan sponsor has made reasonable attempts to locate, the notice is deemed to have been furnished if the participant does not make an election within 30 days.
And where should the participant’s plan benefit be held? Kelly suggests that a plan can consider a transfer to an individual retirement account or an individual retirement annuity. But if the distribution is $1,000 or less and the plan cannot find a vendor to accept it, the plan can:
- opening an interest-bearing federally insured bank or savings association account; or
- using the unclaimed property fund of the state in which the participant’s last known address is located.
What should a plan do if it experiences issues with returned communication or uncashed benefit checks? Kelly suggests that it consider adopting an unclaimed funds policy to address issues with missing participants affecting ongoing plan administration. She also suggests that a plan fiduciary monitor the level of uncashed checks because plan assets are typically moved to a float account once a check is issued. And plan distribution reporting on Form 1099-R needs to be corrected to reflect the absence of an actual distribution.
Kelly also reminds that the plan document may provide that the participant’s benefit may not be forfeited for five years from the unsuccessful attempt to locate the participant.