Kimberly Flett
The Pension Benefit Guaranty Corporation (PBGC) has expanded its Missing Participants Program for terminating plans. Previously this program was available only for defined benefit plans covered under the PBGC’s insurance program. The PBGC is a federal agency created by ERISA to protect participants with benefits within a defined benefit plan. The insurance helps guarantee benefits to participants if the employer fails to make the required premiums.
Beginning Jan. 1, 2018, defined contribution plans may also participate in the PBGC program. Previously defined contribution plans were able to rely on another government program, the IRS’ Missing Participants Program (in conjunction with the Social Security Administration) which is no longer in service. The PBGC program is now opened for defined contribution plans, including 401(k), ESOP and profit sharing plans, multiemployer defined benefit pans, single defined benefit plans, professional service employer plans with 25 or fewer participants and ERISA 403(b)(7) plans. Some examples of plans not covered are governmental plans, church plans, and plans that cannot pay benefits to PBGC in cash. The final rule was published in the Federal Register on Dec. 22, 2017.
The Department of Labor’s (DOL) Field Assistance Bulletin (FAB) 2014-01 provides the actions required in order to utilize the new program. Plan sponsors must notify participants that the plans is being terminated with the appropriate distribution forms and tax notices and state benefits will be distributed. The plan sponsor must take steps to locate non-responsive participants and the size of the participant’s balance is not relevant — small accounts cannot be disregarded.
The regulations encourage the use of free or low cost internet searches that are available... More expansive searches may be necessary, for a fee, if balances are significant. The regulatory agencies might apply facts and circumstances depending on the situation. The failure to take such steps would violate the fiduciary obligations of prudence and loyalty, as set forth in Section 404(a) of ERISA and noted in the guidance.
Specific steps include the use certified mail. The DOL provides a model notice which may be used to notify participants. Sponsors should make every attempt to locate participants including information from related plans such as the employer’s group health plan (considering privacy restrictions). Public records may provide useful results from databases that obtain information on licenses, mortgages, obituaries, real estate tax records, commercial locator services, credit reporting agencies and information brokers. It may be possible to search for and locate a designated beneficiary. Avoidance of immediate taxation is key to preserve assets; however, reasonable expenses may be charged from the participant’s account for this purpose.
While the FAB discusses various rollover options to an IRA or federally insured bank, the new expansion of the PBGC program retains the assets of the missing participant instead. The program’s goal is to ensure defined contribution participants as well as defined benefit participants and beneficiaries receive their benefits, provides a unified unclaimed pension database of information about missing participants and the benefits available, houses a centralized directory, is careful with privacy protection, and performs period searches of archived records.
The PBGC plan includes a onetime transfer charge to enter the program of $35 for each missing distributee and there is no fee for benefits less than $250, maintenance or distribution charges.
The Pension Benefit Guaranty Corporation (PBGC) has expanded its Missing Participants Program for terminating plans. Previously this program was available only for defined benefit plans covered under the PBGC’s insurance program. The PBGC is a federal agency created by ERISA to protect participants with benefits within a defined benefit plan. The insurance helps guarantee benefits to participants if the employer fails to make the required premiums.
Beginning Jan. 1, 2018, defined contribution plans may also participate in the PBGC program. Previously defined contribution plans were able to rely on another government program, the IRS’ Missing Participants Program (in conjunction with the Social Security Administration) which is no longer in service. The PBGC program is now opened for defined contribution plans, including 401(k), ESOP and profit sharing plans, multiemployer defined benefit pans, single defined benefit plans, professional service employer plans with 25 or fewer participants and ERISA 403(b)(7) plans. Some examples of plans not covered are governmental plans, church plans, and plans that cannot pay benefits to PBGC in cash. The final rule was published in the Federal Register on Dec. 22, 2017.
The Department of Labor’s (DOL) Field Assistance Bulletin (FAB) 2014-01 provides the actions required in order to utilize the new program. Plan sponsors must notify participants that the plans is being terminated with the appropriate distribution forms and tax notices and state benefits will be distributed. The plan sponsor must take steps to locate non-responsive participants and the size of the participant’s balance is not relevant — small accounts cannot be disregarded.
The regulations encourage the use of free or low cost internet searches that are available... More expansive searches may be necessary, for a fee, if balances are significant. The regulatory agencies might apply facts and circumstances depending on the situation. The failure to take such steps would violate the fiduciary obligations of prudence and loyalty, as set forth in Section 404(a) of ERISA and noted in the guidance.
Specific steps include the use certified mail. The DOL provides a model notice which may be used to notify participants. Sponsors should make every attempt to locate participants including information from related plans such as the employer’s group health plan (considering privacy restrictions). Public records may provide useful results from databases that obtain information on licenses, mortgages, obituaries, real estate tax records, commercial locator services, credit reporting agencies and information brokers. It may be possible to search for and locate a designated beneficiary. Avoidance of immediate taxation is key to preserve assets; however, reasonable expenses may be charged from the participant’s account for this purpose.
While the FAB discusses various rollover options to an IRA or federally insured bank, the new expansion of the PBGC program retains the assets of the missing participant instead. The program’s goal is to ensure defined contribution participants as well as defined benefit participants and beneficiaries receive their benefits, provides a unified unclaimed pension database of information about missing participants and the benefits available, houses a centralized directory, is careful with privacy protection, and performs period searches of archived records.
The PBGC plan includes a onetime transfer charge to enter the program of $35 for each missing distributee and there is no fee for benefits less than $250, maintenance or distribution charges.
In this program the sponsor of the terminating plan submits the missing participants’ assets to the PBGC. It is voluntary and entering the program will relieve the plan sponsor of the responsibility for the accounts on a go-forward basis.
For more information, including forms and instructions, view the PBGC website here: https://www.pbgc.gov/prac/missing-participants-program
Kimberly Flett is Managing Director and National Practice Leader ERISA, STS Compensation and Benefits at BDO USA, LLP
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