Where’s Waldo? (and Mary…and Joe…and Pat)

Every plan has participants—and, sooner or later, will therefore have “ex” participants—and sometimes those participants go…missing. And that can be a real problem for retirement plan fiduciaries.

While most are likely aware of the fiduciary obligation to keep accurate records, many are less aware that there is also an obligation to take “appropriate steps” to ensure that the participants and beneficiaries are paid their full benefits when due. But what are the “appropriate steps”?

Why It Matters

This is a growing concern of regulators; in fact, (now former) Principal Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson has noted that, “In fiscal year 2020 alone, EBSA’s investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion.”

The good news is, the Labor Department has published some guidance on the subject—in fact, it’s a triple dose of guidance related to helping retirement plan fiduciaries meet their obligations under the Employee Retirement Income Security Act (ERISA) to distribute retirement benefits to missing participants.

What You Can—and Should—Do

Plan fiduciaries will likely find most helpful the first document in the package. Titled “Missing Participants—Best Practices for Pension Plans,” the document outlines those key best practices that you will want to make sure are a part of your process in keeping up with those missing participants. Those best practices are outlined under four broad headings: 

• Maintaining accurate census information for the plan’s participant population. This includes contacting participants (current AND retired, as well as beneficiaries) on a periodic basis to confirm or update their contact information—including putting contact information change requests in plan communications—along with a reminder to advise the plan of any changes in contact information and flagging undeliverable mail/email and uncashed checks for follow-up.
   
• Implementing effective communication strategies. This includes things like using plain language and offering non-English language assistance when and where appropriate, and building steps into your onboarding, exit and enrollment processes to confirm or update contact information, confirm information needed to determine when benefits are due and to correctly calculate the amount of benefits owed, and to advise employees of the importance of ensuring that the plan has accurate contact information at all times.
   
• Documenting procedures and actions. Every good plan fiduciary knows and appreciates the importance of documentation—both as a record of actions taken and as a roadmap for future consideration. As with other plan procedures, when it comes to keeping up with missing participants, this not only means writing it down and keeping it current, but you will also want to be sure that your recordkeeping provider does their part—in maintaining plan records and participant communications and documenting those practices as well.
   
• Conducting missing participant searches. Despite your best efforts to maintain contact, participants often move and/or change names without communicating that information or even leaving a forwarding address.[i] This is where the rubber hits the road for most plan fiduciaries.  The beneficiary information can provide some solid leads, and the reality today is that if you can track down your grade school sweetheart on Facebook, there is a pretty good chance you can leverage social media to do some of the heavy lifting—and even broad-based search engines like Google can be a valuable resource, as well as paid services that can use credit searches and such. 

But the place you should probably start—and one cited in the Labor Department guidance—is the National Registry of Unclaimed Retirement Benefits. It is a free public service designed to help employers or plan fiduciaries and former employees locate each other so the former employees can claim their overlooked or abandoned retirement money.

What better way to not only find “Waldo,” but to ensure that your ex-participants are reunited with the benefits they have earned—to fulfill your responsibilities as a plan fiduciary—and to avoid potential issues with federal agencies down the road.

- Nevin E. Adams, JD 

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[i] And, of course, there are some other good tips here: https://www.penchecks.com/what-to-do-with-missing-participants-and-required-minimum-distributions/        

‘Missing’ Inaction?

Recent DOL guidance on missing participants seems to fall short of what plan fiduciaries want/need—but may offer fiduciaries some key insights to avoid future problems.

On Jan. 12, 2021, the Department of Labor (DOL) released a triple dose of guidance related to helping retirement plan fiduciaries meet their obligations under the Employee Retirement Income Security Act (ERISA) to distribute retirement benefits to missing participants.

Arguably the guidance, while welcome, is less than plan sponsors might have wished (and previously asked) for—and it concerns an issue that most plan sponsors of my acquaintance continue to insist isn’t one, though the Labor Department is clearly of a different mind. In fact, in the first of the three pieces of guidance, the Employee Benefit Security Administration (EBSA) cautions: “The first step in addressing any problem often is knowing that there is one.”[i]

The “issue,” of course, is fulfilling the fiduciary obligation to not only keep accurate records, but to take “appropriate steps” to ensure that the participants and beneficiaries are paid their full benefits when due. The question—and one that it seems remains, following the “guidance”—is, what are the “appropriate” steps?

To that end, the first document in the trio—titled “Missing Participants—Best Practices for Pension Plans”—purports to outline just that, the “best” practices. That’s helpful, of course—and if the steps outlined are familiar ground to most (and by no means the “safe harbor” that folks are hoping to get), it is perhaps at least nice to have the bulleted list. 

However, that it is issued alongside a Compliance Assistance Release (which, among other things, also describes the types of records and documents that EBSA has requested during its investigations in the recordkeeping or administration of benefits for terminated vested participants and beneficiaries and the red flags that it looks for) should heighten attention, even though the third component—a Field Assistance Bulletin—actually provides a temporary enforcement policy under which DOL will not pursue a fiduciary breach claim against a plan fiduciary that transfers the accounts of missing participants in a terminating DC plan to the Pension Benefit Guaranty Corporation (PBGC) as part of the PBGC’s missing participant program. 

All in all, it feels like something of a “warning”—alongside a checklist of things to look for in determining if, in fact, a plan fiduciary is living up to ERISA’s standard of care with regard to ensuring that those who have earned those promised benefits actually receive them.

In fact, the guidance does make certain “allowances.” For example, it notes that “not every practice below is necessarily appropriate for every plan,” and that “responsible plan fiduciaries should consider what practices will yield the best results in a cost effective manner for their plan’s particular participant population.” It also acknowledges that, “in deciding what steps are appropriate, plan fiduciaries should also consider the size of a participant’s accrued benefit and account balance as well as the cost of search efforts,” and that “the specific steps taken to locate a missing participant, or to obtain instructions from a nonresponsive participant, will depend on facts and circumstances particular to a plan and participant.”

That said, it also notes as a “best practice” that plan fiduciaries should have in place a written policy with respect to the plan's procedures on locating missing participants. 

And, taken in totality, as far as “guidance,” it’s hard not to see a cautionary element—and sense that the Labor Department is effectively cautioning plan fiduciaries/advisors that if such a policy is currently “missing” from your current plan toolkit—well, you might be well-advised to (re)consider it.

- Nevin E. Adams, JD

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[i] In fairness, In unveiling the guidance, Principal Deputy Assistant Secretary of Labor for the Employee Benefits Security Administration Jeanne Klinefelter Wilson noted that, “In fiscal year 2020 alone, EBSA’s investigators helped missing and nonresponsive participants recover benefits with a present value in excess of $1.4 billion.”

Missing 'Inaction'

While it’s hardly a new topic, the subject of missing participants is much in the news today – and arguably a growing concern for plan sponsors, particularly with the expansion of automatic enrollment.

Earlier this year the Government Accountability Office published a report – and some recommendations – on the subject of (re)connecting participants with their “lost” account balances. That report noted that from 2004 through 2013, more than 25 million participants in workplace plans separated from an employer and left at least one retirement account behind, “despite efforts of sponsors and regulators to help participants manage their accounts.” The report acknowledged that there are costs involved in searching for these “lost” participants, going on to note that there are no standard practices for the frequency or method of conducting searches.

Once upon a time the IRS provided letter-forwarding services to help locate missing plan participants, but with the Aug. 31, 2012, release of Revenue Procedure 2012-35, the IRS stopped this letter forwarding program. Moreover, while the Labor Department has provided guidance to plan sponsors of terminated DC plans about locating missing participants and unclaimed accounts, they have yet to do so regarding ongoing plans.

That said, the GAO reported that they had been informed by DOL officials that they are conducting investigations of steps taken by ongoing plans to find missing participants under their authority to oversee compliance with ERISA’s fiduciary requirement that plans be administered for the exclusive purpose of providing benefits.¹

In fact, the Labor Department’s Employee Benefit Security Administration’s Chicago Regional office adopted a “missing participant” regional initiative in fiscal year 2017, and – working with the PBGC, has reportedly recovered nearly $6.3 million for 133 participants, according to Bloomberg Businessweek.

More recently Sens. Elizabeth Warren (D-MA) and Steve Daines (R-MT) reintroduced the bipartisan Retirement Savings Lost and Found Act, noting that many Americans leave their jobs each year without giving their employers directions with what to do with their retirement accounts – a trend the bill’s sponsors say has increased with the expansion of auto enrollment. The legislation calls for the creation of a national online lost and found for Americans’ retirement accounts – and claims to leverage data employers are already required to report to do so (though the devil may lie in the details). The legislation also purports to clarify the responsibilities employers and plan administrators have to connect former employees with their neglected accounts.

Indeed, in such matters, plan sponsors often feel trapped between the proverbial rock and the hard place – pressed hard on the one hand by regulators to locate these former participants (and potential beneficiaries) – on another by state agencies with an avid interest in the escheatment of those funds – and often squeezed by the growing costs not only of trying to locate these participants, but the costs of distributing a wide assortment of plan notices, not to mention the ongoing costs of maintaining these accounts in potential perpetuity.

Little wonder that among its recent recommendations, the GAO recommended that the Secretary of Labor “issue guidance on the obligations under the Employee Retirement Income Security Act of 1974 of sponsors of ongoing plans to prevent, search for, and pay costs associated with locating missing participants.”

Said another way, what’s “missing” is more than former participants – it’s some safe harbor guidance that would provide some comfort and structure to those trying to reasonably fulfill their duties as plan fiduciaries – an ongoing concern for plans² that are an ongoing concern.

- Nevin E. Adams, JD
 
Footnotes

1.  Speaking of missing participants, the headlines of late have focused on issues regarding defined benefit participants. Most notably perhaps, MetLife disclosed last year that it failed to locate some group annuity clients that had likely moved or changed jobs. Nor was this a recent problem – the issue, which the firm said involved some 13,500 pension clients, was attributed to a “faulty system” that the firm had been using for a quarter century – a system that assumed that if the firm was unsuccessful in contacting participants twice that the individual would never respond, and that therefore weren’t going to claim benefits. In fact, the Labor Department’s push for companies sponsoring pension plans to find missing participants cited above reportedly influenced MetLife’s decision to conduct the review. Enter Secretary of the Commonwealth William F. Galvin, who just announced that his office discovered “hundreds of Massachusetts retirees” who are owed pension payments by MetLife. Galvin noted that the regulator planned to look into what MetLife had done in the past to locate and pay the retirees. 

• He also said his office’s investigation has been expanded to look into other firms who provide  retirement payments, including Prudential, Transamerica, Principal Financial, and Mass Mutual. ↩

1. You may recall that last fall the Pension Benefit Guaranty Corporation (PBGC), the nation’s private pension plan insurer, announced the expansion of its Missing Participants Program beyond its historical focus on PBGC-insured single-employer plans as part of the standard termination process to cover defined contribution plans (e.g., 401(k) plans) and certain other defined benefit plans that end on or after Jan. 1, 2018. However, this only deals with terminating defined contribution plans. ↩