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Missing Participants – Out of Sight Out of Mind?

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Imagine it’s March 31 and you are a retirement plan administrator.  You have a participant who terminated employment 15 years ago.  He turned 70½ last year and now you owe him his first required minimum distribution from the Plan on April 1.  You have not thought about this participant or attempted to locate him in the past 15 years.  It doesn’t seem like a big deal until you realize if the participant does not receive his required minimum distribution, he will owe a 50% excise tax on the required minimum distribution.

This scenario is common to plan administrators.  In trying to keep up with the day to day requirements of administering retirement plans, it is easy to lose touch with former employees or beneficiaries.  Initially, this does not seem to be a problem, but as the years go by, missing participants start to create more problems for administrators.  The most common problems arise when required minimum distributions are due to the participant or the plan is terminating and plan administrator has no idea where to find a large number of missing participants.

To avoid the scenario outlined above, a plan administrator may want to consider periodically searching for missing participants (e.g., once every two years).  Locating lost participants may even ease plan administration.  If you periodically communicate with participants, it may encourage them to take timely distributions and even cash out small account balances.

At a minimum, a plan administrator likely must make “reasonable efforts” to locate a participant or beneficiary at the time a benefit is due.  However, there is limited guidance on what are considered reasonable efforts in an ongoing plan.  The Department of Labor issued Field Assistance Bulletin 2014-01 that provides guidance on steps a terminating plan should take to locate participants.  In many instances, using this guidance may be appropriate to try to locate missing participants in an ongoing plan.  The Department of Labor guidance provides that a plan administrator should take the following steps (in no specific order):

  • Attempt to contact a participant using certified mail.
  • Review Plan and Employer Records.  This includes reviewing other plans, such as a group health plans, that may have more current information.  The DOL has stated that if there are privacy concerns, the plan administrator can request that the employer or other plan fiduciary contact or forward a letter to the missing participant or beneficiary.
  • Check With the Designated Plan Beneficiary. In searching the plan’s records, a plan administrator may want to reach out to the participant’s designated beneficiary (e.g., spouse, children, etc.) to find updated contact information for the missing participant.
  • Use Free Electronic Search Tools. Plan administrators may want to use internet search tools to try to locate missing participants.  Examples of such search tools include internet search engines, public record databases (such as those for licenses, mortgages and real estate taxes), obituaries and social media.

In addition to these steps, plan administrators may want to ask terminating employees to provide a personal cell phone number and email address.  In some instances, participants change mailing addresses a number of times, but continue to maintain the same cell phone number and email address.  Having this information on file can give an administrator one more method to use to try to locate a lost participant.

While missing participants may continue to create headaches for plan administrators, periodic searches may reduce the number of missing participants and the administrative errors that go along with them.