Employees are generally good at cleaning out their desks on their last day of employment. But updating changes to their retirement accounts and benefit plans? Not so much.
For years, there were ongoing concerns at the Department of Labor (DOL) that employers and plan administrators were shirking their fiduciary responsibility to retirement plan participants by not consistently investigating cases of former participants who were missing.
Latest DOL Guidance for tracking down “Missing Participants”
Similarly, employers and plans spent the same years with valid concerns about procedures for finding missing participants. With no guidance from the DOL, plans were hesitant amidst privacy and other concerns to pursue people that fell into the gray area of missing participants.
After many years of feedback about the lack of guidance, in January 2021, the DOL released nationwide guidance that charted a path for benefit plans on doing their due diligence to track down missing participants, and also best practices to minimize the rate of missing participants in the first place, with an eye on meeting their responsibilities as fiduciaries in the space.
Red flags: Indicators of a plan not using best practices
One of the first key takeaways from the DOL’s guidance was that there are a number of signs of a benefit plan administrator that are indicative of a high number of missing participants. DOL investigators look at these “red flags” as areas where plans have the fiduciary responsibility to improve, with an overall goal of minimizing the number of missing participants in the future. They include plans that have:
- More than a small number of missing or nonresponsive participants.
- More than a small number of terminated vested participants who have reached normal retirement age but have not started receiving their pension benefits.
- Missing, inaccurate or incomplete contact information, census data, or both (e.g., incorrect or out-of-date mail, email, and other contact information, partial social security numbers, missing birthdates, missing spousal information, or placeholder entries).
- An absence of sound policies and procedures for handling mail returned marked “return to sender,” “wrong address,” “addressee unknown” or otherwise, and undeliverable email.
- An absence of sound policies and procedures for handling uncashed checks (as reflected for example, by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks, or failure to reclaim stale uncashed check funds in distribution accounts).
If any one of those applies to a plan administrator, it is critical to remediate the problem in order to align with DOL guidance.
How to start looking for missing participants
If participants are already missing, some good news is that the DOL and the Internal Revenue Service (IRS) each provided guidance for companies that are required to search for missing participants. To find a participant, the company should:
- Check other benefit plan records for the participant, next of kin, beneficiaries and emergency contacts. This can include health plans and payroll records.
- Contact remaining employees in the workplace who were close to the participant.
- Check free online search engines and databases to search for the individual. This can include real estate information, social media, news and obituaries.
- Use a service provider such as a credit reporting bureau or commercial locator service.
- Attempt to contact the individual via their last available USPS address or digital addresses like e-mail, phone and social media.
- Register people in unclaimed retirement benefit databases such as the National Registry of Unclaimed Retirement Benefits.
Each of these steps should be taken with care and privacy in mind. Companies should also be extra vigilant because solicitation of a missing participant frequently invites fraudulent claims for benefits.
If none of these methods work, and the participant still cannot be found, the DOL states that companies should continue going through the steps periodically until the person is found. If there is still no response after an extended period of time, the employer should use death databases, such as the Social Security Death Index, to see if the person has passed away. If the person has passed, then the benefits can be distributed to beneficiaries.
Best practices for mitigating the problem before it starts
The DOL’s research showed that one of the critical issues for benefit plans was that the plans were not following best practices regarding missing participants. Because of this finding, they advised that employees start with the following actions to solve the problem at the root:
- Maintain accurate census information: This means reaching out to employees and beneficiaries on a regular basis to update contact information, using secure digital systems that allow employees to easily update their information, and making contact information updates an aspect of any plan or employee transfers.
- Communicate more effectively: When asking an employee for their information, use uncomplicated wording and clearly state the reason the information is being collected. If the plan or name changes, use the original name of the plan so that the recipient recognizes the communication.
- Document procedures and actions to keep track: This is critical, and it includes monitoring any in-house or third parties that are managing records. Done correctly, it will help ensure consistent compliance.
What’s next for providers
Despite the guidance clarifying long-term challenges when finding missing participants, questions still remain for providers. The guidance still lacks clarity in several areas, including thresholds of amounts left in accounts, timeframes for how long the employer must search and intentionality of the search process to look for missing participants.
Long-term fixes to those challenges may come in future guidance from the DOL, or legislatively from Congress. But in the short term, companies should be aware that the DOL continues to audit and investigate problematic plans. To mitigate the risk of audit, employers should follow the above guidelines as closely as possible, and be sure to document their procedures for how missing people are handled.
If you’re interested in mitigating risk related to plan benefits, or getting advice on aligning your missing persons policies with DOL guidance, reach out to your Windham Brannon advisor, or contact Anne Morris.
