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Dec 2014
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December 15, 2014

Did You Miss Me? U.S. Department of Labor Updates Guidance for Finding ‘Missing Participants’


The U.S. Department of Labor (DOL) has provided updated guidance for retirement plan fiduciaries who are attempting to find participants to distribute plan assets from a terminating plan. Although the guidance technically only applies in the context of a terminating plan, the principles described below are also helpful to plan fiduciaries searching for participants in active plans.

Participants in a retirement plan are generally required to affirmatively elect a retirement plan distribution. Unfortunately, in some cases participants fail to update their contact information and plan fiduciaries can be stuck in the position of a plan holding assets for someone who cannot be found to make that election. The DOL guidance provides an updated perspective on what steps the department requires plan fiduciaries to take to locate participants in a terminating plan and, by extension, what steps the government considers prudent to find missing participants in any situation.

Search Steps

A minimum of four steps are required before abandoning efforts to find a missing participant:
  1. Use certified mail.
  2. Check related plan and employer records.
  3. Check with the designated beneficiary,  if any.
  4. Use free electronic search tools, which is a new requirement. The DOL guidance refers to Internet search engines, public record databases, obituaries and social media. The constantly evolving state of the Internet means this standard should be applied to whatever new technologies or applications are available to the plan fiduciaries.
The DOL eliminated the prior requirement that a plan fiduciary use the IRS or Social Security Administration letter-forwarding programs because those programs are no longer available.

Note that these four steps are the minimum. Additional steps may be required by the circumstances, such as using a paid commercial locator service, credit reporting agencies, information brokers, investigation databases, etc. Some state government agencies also have low-cost locator services available. A plan fiduciary should consider the size of the account balance and the cost of search efforts in determining what additional steps to take.

Distribution Options

For participants who can’t be found using the methods described above, the plan fiduciary will have to make a decision on how to handle the missing participants’ accounts so the terminating plan can be fully liquidated and terminated. The distribution method is also a fiduciary decision. If the company sponsors another defined contribution plan which can hold the assets, that would be the first alternative. Assuming the company does not have any other defined contribution plan, the DOL guidance reiterates its preference for those accounts to be distributed to an individual retirement plan in accordance with the DOL’s regulatory safe harbor for rollover distributions to an individual retirement plan from a terminating defined contribution plan.

If no individual retirement plan provider will accept the direct rollover, the DOL identifies two other options:
  1. Open an interest-bearing, federally insured bank account to hold the funds.
  2. Transfer the funds to a state unclaimed property fund.
The fiduciary must conclude that those options are prudent despite the loss of pre-tax status of the accounts. The DOL concludes that these options generally would not be prudent if an individual retirement plan rollover distribution is available. The DOL also reiterated its prior guidance that 100 percent tax withholding is not an acceptable option to address missing participants.

The updated DOL guidance is helpful both for terminating retirement plans and for the administration of ongoing plans. As always, documentation is critical to prove a fiduciary acted prudently—plan records should include notes regarding the search steps taken and the distribution option that was implemented for those missing participants who could not be found. Note also that your retirement plan may need to be updated if it refers to the prior DOL guidance, which may include requiring the use of the IRS or Social Security Administration letter-forwarding programs.

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