Missing Participants—What Am I Missing?

Missing participants are a problem—for employers, for plans, for beneficiaries and even for the participants themselves. A Nov. 11, 2020 session of ASPPA All Access offered a look at the challenge missing participants pose, and what can—and must—be done to meet it.

Maggie Younis, CPC, QPA, QKA, TGPC, ERPA, National Director, Consultant Relations at Lincoln Financial Group, and S. Derrin Watson, APM, an attorney who is of counsel with the Ferenczy Benefits Law Center, offered their insights in the session. 

Who They Are and How They Go Missing

Participants are considered to be missing for one of two reasons: they cannot be located, or they do not respond to efforts to contact them. And that, in turn, can be attributable to a variety of reasons: 

• the employer is part of a merger or acquisition;
• records are lost;
• the participant died;
• beneficiary records were not updated; or
• if the participant moves, doesn’t update contact information or doesn’t want to be located.

Why Missing Participants Are a Problem

Missing participants are a problem because they: 

• may prevent timely required minimum distributions, which could result in penalties;
• create added plan expense; 
• increase exposure to fraud; 
• could delay plan termination; and  
• complicate reporting on the Form 5500.

Missing participants also generate attention from the Department of Labor (DOL), Younis and Watson noted, and that the DOL sees missing participants as a fiduciary issue. “The Department of Labor has been concerned for quite some time about the importance of uniting participants with their money,” said Watson. So concerned, he said, that the DOL has said that some steps to find them are so important that fiduciaries “should always take them, regardless of the size of the participant account balance.” 

Finding Missing Participants 

Failure to take certain steps would violate the fiduciary duties of prudence and loyalty that are contained in Section 404(a) of ERISA, Watson said. 

The DOL in Field Assistance Bulletin 2014-01 outlined steps that can be taken to find missing participants: 

• send a notice to a participant using certified mail;
• check employer records;
• contact designated beneficiaries;
• use electronic search tools; and 
• check public record databases and obituaries. 

Watson hailed the success of a DOL pilot program for finding missing participants. “They were able to reunite an astonishing amount of money to the participants just be sending a certified letter,” he said.  

The DOL is not alone in its concern about missing participants. Younis and Watson observed that the IRS, too, has issued guidance on finding them. In a 2017 memorandum for Employee Plans (EP) examination employees, the IRS suggested:

• searching plan and related plan, sponsor and publicly available records;
• using search methods;
• enlisting the assistance of commercial locator services;
• using the services of a credit reporting agency; 
• using internet search tools; and 
• sending USPS certified mail to a participant’s last known mailing address.

The cost of searching for missing participants varies based on what search method or service is used. Watson noted that it is permissible to charge search expenses to the missing participant. He added a caveat about that, however, telling attendees that such a practice “ought to be part of the standard explanation” provided to participants, and also probably should be part of a summary plan description. 

Plan Terminations 

The DOL has indicated that the best thing to do about missing participants when there is a plan termination is to roll their money over, said Watson, warning, “If you have the opportunity to do a rollover, any other approach may be a breach.” 

And another agency—the Pension Benefit Guaranty Corporation (PBGC)—is involved, in this case concerning missing participants when a plan terminates. “On the whole, it’s not a bad program,” Watson remarked. It became available on Jan. 1, 2018; through the program, the benefits of a missing participant are transferred to the PBGC for distribution. There is a one-time set-up fee, but there are no ongoing account maintenance fees or distribution charges. 

Additional Steps and Best Practices

There are additional ways to try to locate missing participants, Younis and Watson note: 

• contact current and former co-workers;
• use social media, such as Facebook, Twitter and LinkedIn;
• search through the National Registry of Unclaimed Retirement Benefits; and 
• use a locator service. 

And the unique circumstances that have arisen because of the pandemic—particularly the rise of the remote workforce—heightens the importance of maintaining up-to-date contact information for participants. 

In addition, cyber security “is a huge issue,” Younis said, adding, “I think it’s going to keep growing.” She said that it is important that participants register their accounts and make sure they have dual authentication.  

The Big Picture

Younis and Watson cast handling missing participants in the broader context of fiduciary duty and offering a benefit plan in the first place. Younis cited Preston Rutledge, who remarked while he was Assistant Secretary of Labor for the Employee Benefits Security Administration in February 2019, “There’s really no more basic fiduciary duty than the duty to operate the plan for the purpose of paying benefits, so falling down here is a serious matter. We just can’t look the other way. I think we all have a little piece of the pie here to be successful with paying out benefits.” 

“When you get right down to it, the purpose of a benefit plan is to provide benefits to employees,” said Watson. “If we’re not distributing money we’re supposed to to participants, there’s something seriously wrong.”