Assistant Vice President and ERISA Attorney, Benefits Consulting Group, John Hancock Retirement Plan Services
The issue of “lost” or “missing” participants under a qualified retirement plan has been a vexing problem for plan administrators and plan sponsors over the years. Now we understand that failing to implement procedures for tracking down such participants may be viewed by the Department of Labor as a breach of fiduciary duty. Moreover, if this breach results in a failure to pay plan benefits in a timely manner (for instance, commencing MRDs after age 70½) the Internal Revenue Service may in turn challenge the qualification of the underlying plan.
What defines a good-faith effort to find a lost participant?
To answer that question, we call your attention to two government documents that, together, seem to provide a ready-made process for locating plan participants who have dropped out of sight.
From the Department of Labor’s Field Assistance Bulletin (“FAB”) 2014-01
Although this bulletin officially applies only to terminated defined contribution plans, we think it could provide effective guidance for ongoing plans as well. In this piece, the DOL suggests the following sequence:
Check the records of any employer plan
Contact the participant’s beneficiary of record
Send a notice via certified mail
Use free electronic search tool--such as internet search engines, public record databases (say, a database of state licensees), and social media
If the participant’s balance is large, considering paying for a more targeted search
From a 2017 IRS memorandum
The Internal Revenue Service recently issued a memo explaining that its examiners won’t challenge a plan for failing to satisfy required minimum distribution standards, provided the plan takes the following steps to find a missing participant:
Search plan, related-plan, employer, and publicly available records or directories for alternative contact information
Use either a commercial locater service, a credit reporting agency or a proprietary internet search tool to locate lost participants
Attempt contact via the last known mailing address (USPS certified mail), phone number, or email address
Formulating your own lost-participant search policy
At the very least, these two pieces of guidance should help plan sponsors formulate their own approach in locating participants. Moreover, plan sponsors should be cautioned that not only is it imperative to formulate a due diligence approach for locating lost participants, but it’s just as important to document your steps in case of a subsequent audit.
Of course, a lot of hard work can be avoided by emphasizing to participants the need to keep the plan sponsor notified of any change in address. Every exit interview and subsequent communication to former employees could include a request for an up-to-date EM address and cell phone number.
And, your policy about keeping contacts current should be emphasized in the summary plan description—along with a warning that failure to do so may preclude the timely payment of benefits and even result in tax penalties.
To arrange a consultation about the effects of recent legislation and regulations on your retirement plans, contact your John Hancock representative.
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