On 1/26/21, Retirement Clearinghouse (RCH) released a study that advances the art and science of locating missing 401(k) plan participants. The study – Improving the Effectiveness of Electronic Missing Participant Searches – comes on the heels of U.S. Department of Labor (DOL) guidance on the topic and is highly-useful for plan sponsors who utilize electronic searches, or “e-Searches” as they are referenced in the study.
An Uncertain Environment
While the recent DOL guidance is helpful and offers 401(k) plan sponsors a wide range of best practices for locating missing plan participants, it established no clear “bright line” rules for what constitutes a diligent search. Facing continued uncertainty, many plan sponsors utilize a wide variety of search techniques, including e-Searches, but likely have little or no insight into their accuracy or relative effectiveness when applied in different missing participant scenarios.
Evaluating and Reimagining Missing Participant e-Searches
With these uncertainties in mind, RCH undertook a six-month research & development initiative, led by RCH’s Chief Operating Officer Ricki Ingalls, Ph.D., who previously developed the company’s Auto Portability Simulation.
Initially examining an entire range of e-Search options available to plan sponsors, the Ingalls-led team evaluated 17 separate e-Search databases falling into five general categories, testing each against small populations of participants. On a standalone basis, the team eventually identified a specific credit service bureau search as the top performer, but also devised a proprietary algorithm that could join multiple e-Searches and, in theory, build and present a more reliable, “optimized” result than any single e-Search method.
The final stage of the study exhaustively evaluated the standalone credit service bureau search and the optimized e-Search, by executing searches against four separate control groups:
- High-Confidence Address Group: 997 participants whose addresses were believed “good.”
- Low-Confidence Address Group: 998 participants whose addresses were believed “bad” based upon returned mail.
- No Address Group: 241 participants with no address on file.
- Deceased Group: 699 participants believed to be deceased, based on file status.
Besides simply obtaining search results, the study conducted follow-on analysis and outreach to further evaluate each result in terms of its reliability or accuracy.
What the Study Found
The study revealed three key findings:
- There was a much higher-than-expected incidence of stale addresses for the “high-confidence” address group. Based on previous research, the team expected to find about 16-17% stale addresses, but observed 33.2%, or twice the level expected. This suggests that 401(k) plans may have a significant “hidden” percentage of stale addresses that should be periodically searched, even when there are no overt indications of problems, or “red flags” as characterized by the DOL’s guidance.
- An optimized e-Search significantly increased search reliability across all control groups. When compared to the standalone credit service bureau search, the optimized e-Search boosted reliability from +3.1% for determining life status, to +10-20% for locating updated addresses.
- A better understanding of the applicability of e-Searches to specific, underlying use cases. E-Searches were found to be highly effective in performing periodic address updates, and least effective in locating participants with no address on file.
In conclusion, the study offers 401(k) plan sponsors with 4 specific recommendations on getting the most effective results from a program of e-Searches.
The survey is available to download at https://info.RCH1.com/missing-participant-esearch-study.