The Department of Labor (DOL) released three new pieces of guidance in January 2021 aimed at helping retirement plan sponsors with the challenge of missing participants. Under the Employee Retirement Income Security Act (ERISA), plan sponsors have a responsibility to make sure terminated participants receive their benefits that are meant to help fund their retirement. Many times, this does not happen if employers lose track of former employees because of incorrect contact information. Many participants are simply not aware of their benefits and rights under the plan or do not understand their responsibility to inform their employer of changes to contact information. Here is a summary of the new guidance.
xxxMissing Participants-Best Practices for Pension Plans released on January 12, 2021 by the DOL details “red flags” that indicate a retirement plan has a problem and provides a number of examples of “best practices” that employers should adopt to minimize missing participants, as follows:
Maintain accurate employee contact information
- Regularly contact participants and beneficiaries to confirm contact information is up to date for both current and former employees.
- Include requests for contact information changes along with plan communications.
- Flag any uncashed checks or returned/undeliverable mail.
- Monitor online platforms for changes to contact information.
- Regularly audit census information and correct any errors found.
- Properly transfer all employee records in the case of a business merger or acquisition and any change of record keeper.
Implement effective communication strategies
- Use plain language, state what the communication is about, and offer non-English language assistance if necessary.
- Build onboarding and exit processes that encourage employees to communicate effectively about the plan and the importance of correct contact information.
- Use missing participant searches.
- Review all related plans and records of the employer to locate next of kin or emergency contact information.
- Contact plan beneficiaries to locate former employees.
- Use free online search engines, public databases, or social media.
- Use a commercial locator service, internet search, or credit reporting agency.
- Use death searches such as the Social Security Death index.
- Ask colleagues or coworkers to help with the contact information.
- Register missing participants on public and private pension registries such as the National Registry of Unclaimed Retirement Benefits.
Document procedures and actions
- Put the plan’s procedures in writing and make sure they are followed consistently.
- Document the implementation of these policies.
- If the plan has a third-party record keeper to handle plan records and participant communications, the employer should work closely to ensure proper procedures are being followed and correct any issues.
xxxCompliance Assistance Release No. 2021-01, also released on January 12, 2021, announces the Terminated Vested Participant Project (TVPP) to audit and improve voluntary compliance for plan sponsors. The Employee Benefits Security Administration’s (EBSA) regional offices will use information at their disposal, including annual Form 5500 filings and contacts from plan participants, to identify and open investigations into plans that have problems with missing participants. The EBSA will send letters to plan sponsors if an investigation is opened.
These TVPP investigations will include requesting plan information from the plan sponsor, including plan documents, census records, actuarial reports and employee communication records. The EBSA looks for systematic issues such as errors in record keeping, lack of adequate procedures and other problematic practices. The goal of TVPP cases is to help plan sponsors find and fix errors and help plans with missing participants, not cite individual plan sponsors for specific ERISA violations.
xxxField Assistance Bulletin No. 2021-01, the third piece of guidance released, announces that the DOL will not pursue violations against responsible parties in connection with the transfer of a missing or non-responsive participant’s or beneficiary’s account balance to the Pension Benefit Guaranty Corporation (PBGC) rather than to an individual retirement account or annuity (IRA), certain bank accounts, or to a state unclaimed property fund, if they comply with the guidance in this memorandum and have acted in good faith.
The DOL provides a safe harbor which generally requires distributions from terminated and abandoned individual account plans (e.g., 401(k) plans) be rolled over to an individual retirement account or annuity (IRA), or be deposited to certain bank accounts or to a state unclaimed property fund. If the conditions of the safe harbor are met, a fiduciary is deemed to have satisfied the requirements of section 404(a) of ERISA with respect to distributing benefits, selecting a transferee entity, and investing funds in connection with the distribution.
In December 2017, the Pension Benefit Guaranty Corporation (PBGC) established the PBGC Defined Contribution Missing Participants Program (Program) to hold retirement benefits for missing participants and beneficiaries in most terminated defined contribution plans and to help those participants and beneficiaries receive those benefits. The PBGC cites multiple benefits of the Program, including:
- benefits of any size can be transferred to the PBGC;
- periodic active searches by the PBGC increases the likelihood of connecting missing participants with their benefits;
- benefits are not diminished by ongoing maintenance fees or distribution charges;
- transferred amounts grow with interest (at the applicable Federal mid-term rate); and
- lifetime income options are available for balance transfers over $5,000.
The DOL intends to look into what changes are needed to its safe harbor regulation so that transfers to the PBGC by terminating or abandoned individual account plans would be eligible for relief under the safe harbor. Pending further guidance, the DOL will not pursue violations under section 404(a) of ERISA against responsible parties in connection with the transfer of a missing or non-responsive participant’s or beneficiary’s account balance to the PBGC rather than to an IRA, certain bank accounts, or to a state unclaimed property fund, if they comply with the guidance in this memorandum and have acted in good faith.
However, this temporary enforcement policy does not preclude the DOL from pursuing violations for a failure to diligently search for participants and beneficiaries prior to the transfer of their account balances to the PBGC or from pursuing violations for a failure to maintain plan and employer records.
For questions or more information, please contact
Therese Cheevers at
[email protected].
