‘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.”

Some Thanksgiving Thanks!

Thanksgiving has been called a “uniquely American” holiday, and while that may be something of an overstatement, it is unquestionably a special holiday, and one on which it seems appropriate to reflect on all for which we should be thankful.

So, as I look back at this past year:

• I’m thankful that so many employers voluntarily choose to offer a workplace retirement plan – and that so many workers, given an opportunity to participate, do.

• I’m thankful that a growing number of employers have chosen to automatically enroll valued workers into these programs, and that they are increasingly opting to establish a default contribution rate in excess of the “traditional” 3%.

• I’m thankful that the vast majority of workers defaulted into retirement savings programs tend to remain there – and that there are mechanisms (automatic enrollment, contribution acceleration and qualified default investment alternatives) in place to help them save and invest better than they might otherwise.

• I continue to be thankful that participants, by and large, continue to hang in there with their commitment to retirement savings, despite lingering economic uncertainty and competing financial priorities, such as rising health care costs and college debt.
  

• I’m thankful that more plan sponsors are making it easier for workers to participate in retirement savings programs, and automatically enrolling them sooner and at higher default contribution rates.

• I’m thankful for the strong savings and investment behaviors emerging among younger workers – and for the innovations in plan design and employer support that foster them. I’m thankful that, as powerful as those mechanisms are in encouraging positive savings behavior, we continue to look for ways to improve and enhance their influence(s).

• I’m thankful for qualified default investment alternatives that make it easy for participants to benefit from well-diversified and regularly rebalanced investment portfolios – and for the thoughtful and ongoing review of those options by prudent plan fiduciaries. I’m hopeful that the nuances of those glidepaths have been adequately explained to those who invest in them, and that those nearing retirement will be better served by those devices than many were a decade ago.

• I am thankful that powerful, impactful legislation like the SECURE Act can still pass the often-divided House of Representatives on a robust bipartisan basis – though I can’t help but be disappointed that, for the moment, anyway, the much-needed benefits have fallen prey to other matters.

• I'm thankful for the increase in contribution and benefit limits - so that those who can afford to set aside more for retirement can do so (as we all strive to help our retirement funding keep pace with the cost of living).

• I’m thankful for the development of our new Certified Plan Sponsor Professional(TM) credential, the support of our education partners in not only developing the program, but in partnering with us, and our various advisor networks to help distribute critical education to plan sponsors who, though tasked with an awesome task, are seldom provided the training or education commensurate with that responsibility. 

• I’m thankful that figuring out ways to expand access to workplace retirement plans remains, even now, a bipartisan focus – even if the ways to address it aren’t always.

• I’m thankful that the ongoing “plot” to kill the 401(k)… (still) hasn’t. Yet.

• I’m thankful to be part of a team that champions retirement savings – and to be a part of helping improve and enhance that system.

• I’m thankful that those who regulate our industry continue to seek the input of those in the industry – and that so many, particularly those among our membership, take the time and energy to provide that input.

• I’m thankful for all of you who have supported – and I hope benefited from – our various conferences, education programs and communications throughout the year.

• I’m thankful for the opportunity to acknowledge so many outstanding professionals in our industry through our Top Women Advisor, Top Young Retirement Advisor (“Aces”), Top DC Wholesaler (Wingmen), and Top DC Advisor Team lists. I am thankful for the blue-ribbon panels of judges that volunteer their time, perspective and expertise to those evaluations.

• I’m thankful for the warmth with which readers and members, both old and new, continue to embrace the work we do here.

• I’m thankful for the team at the American Retirement Association, and for the strength, commitment and diversity of the membership. I’m thankful to be part of a growing organization in an important industry at a critical time. I’m thankful to be able, in some small way, to make a difference.

 But most of all, I’m once again thankful for the unconditional love and patience of my family, the camaraderie of an expanding circle of dear friends and colleagues, the opportunity to write and share these thoughts — and for the ongoing support and appreciation of readers… like you.

Wishing you and yours a very happy Thanksgiving!

- Nevin E. Adams, JD

View "Points"

By any measure, the just-concluded NAPA 401(k) Summit was an incredible, record-breaking success – with so much good content and networking that it was hard to choose between sessions. For those who weren’t able to be there – or who were unable to be everywhere at once – here are some random thoughts, insights and perspectives from that event.

Health savings accounts could wind up being a big deal.

One man’s loophole is another man’s incredibly important tax preference.

The most important thing is not what happened, it’s what’s going to happen.

Online gambling didn’t kill Vegas – and robo-advisors won’t kill 401(k) advice.

In tax reform, everything is about trade-offs.

84% of Millennials surveyed want their investments to make the world better.

Retirement plans are about 1/50th of what a plan sponsor does.

Fees are still a major factor in landing a new client.

Most people want to do the right thing, but they don’t know how to do it.

When the market goes down, lawsuits go up.

Claiming Social Security before age 66 permanently reduces a client’s retirement benefit. Almost
75% of Americans claim Social Security before their Full Retirement Age.

After 66, Social Security retirement benefits grow by 8% per year.

All PEPs are MEPs but not all MEPs are PEPs.

People want to be financially secure. They know what to do to become financially secure. Yet, they are not financially secure.

What do you have “in your head” that’s not on your website?

In 1835 the normal retirement age was… death.

The DOL’s been very clear that “QDIA protection evaporates” under certain circumstances.

President Trump is like a tech stock – he could fly high, or he could be a train wreck.

For a plan committee, especially when it comes to investment changes, doing nothing is often best.

For prospects, at the end of the day, client references are the ultimate value message.

Repeatability is an important key to building a practice.

Plan sponsor: “Don’t assume what’s obvious to you is obvious to me.”

So, how are you going to top this?

We heard the latter a number of times during the course of the 2017 NAPA 401(k) Summit – which admittedly set a whole new standard for what has become the nation’s retirement plan advisor convention. But we also heard that after the 2016 NAPA 401(k) Summit, and I think we managed to do so. Thanks again to our sponsors, our presenters and facilitators, and most particularly those who supported the event with your attendance and participation – who were all part of a remarkable experience!

If you were there, tell a friend. And whether you were there or not, make plans now to attend the 2018 NAPA 401(k) Summit – and see how we’ll top this year’s!

Sign up for updates at http://napasummit.org/.

- Nevin E. Adams, JD

5 Things Plan Sponsors Should Know

Whether or not you’re in the habit of making New Year’s resolutions, this is a time of year when reassessments seem appropriate, and perhaps in no area as much as that of retirement plan administration. Many find themselves in the role of plan sponsor (or plan committee) with no background, limited training, and far more responsibility than they may appreciate at the outset.

For those of you who find yourself starting the year with new plan sponsor clients, or new members of the plan committee, or perhaps even incumbents who could benefit from some New Year’s resolutions, here’s five things every plan sponsor should know:

How much your 401(k) plan costs.

Okay, fees are just one of several factors plan sponsors need to consider, but when the fees for services are paid out of plan assets, there is an obligation to understand the fees and expenses charged. This is important because you are expected to ensure that the fees paid and services rendered to the plan are reasonable. It’s hard to know if the fees paid are reasonable if you don’t know what they are. Oh, and even if the plan fees were determined to be reasonable in the past, they need to be monitored. Things change over time, after all.

Need some help? Check out this information from the Employee Benefits Security Administration. 

The services that you receive for those 401(k) fees.

As noted above, determining reasonability of fees and services means not only understanding the fees paid, but also the services provided for those fees. Larger fees may, of course, be reasonable for more expansive or comprehensive services. But also note that paying big fees for unnecessary services could be considered unreasonable.

See also “Tips For Selecting And Monitoring Service Providers For Your Employee Benefit Plan.”

How much of your 401(k) plan fees/costs go to whom.

Arguably, knowing how much who is being paid for what is required to assess reasonableness. But the Department of Labor now requires that “covered service providers” (CSP) furnish in writing “the services to be provided and all direct and indirect compensation to be received by a CSP, its affiliates, or subcontractors. You can find out more about these requirements here.

Who the plan fiduciaries are.

Odds are, if you as a plan sponsor are reading this, you are one. But don’t take my word for it. Check out “Meeting Your Fiduciary Responsibilities.”

The responsibilities — and obligations — of plan sponsors.

Since you (probably) are one, you should make sure you know what your responsibilities are, the extent of your personal liability, and what kind of insurance is maintained by your employer to address that exposure.

Fiduciaries have important responsibilities and are subject to standards of conduct because they act on behalf of participants in a retirement plan and their beneficiaries. In addition to paying only reasonable plan expenses, these responsibilities include acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them, following the terms of plan documents, and carrying out their duties prudently.

That brings up a sixth item for our plan sponsor list: If a plan fiduciary lacks the expertise to fulfill those duties, they should, of course, consider hiring a professional to help them.

- Nevin E. Adams, JD