What’s Missing from Many Plans? Current Addresses for Participants

By Spencer Williams | March 22, 2021

So many extraordinary developments took place last year that some trends fell under the radar. One of these—the sharp uptick in migration out of large U.S. cities—can make a significant impact on sponsors and their plans.

According to U-Haul’s special 2020 migration analysis, following President Trump’s declaration of the pandemic as a national emergency last March, the 30 most populated U.S. cities all saw more U-Haul trucks leaving than arriving over the following three months. In May 2020, one-way U-Haul truck rentals across the country surged by 72% over the previous month, and continued to rise month-over-month through August.

New York City and the San Francisco Bay Area experienced the largest exoduses in 2020. From March through December, U-Haul truck arrivals to the Big Apple plummeted 35% year-over-year, and arrivals to the Bay Area dropped 31% year-over-year. The sharpest spikes in year-over-year U-Haul truck departures from both metropolitan areas occurred during the three-month period between March and June 2020.

U-Haul’s analysis shows that, among other things, the pandemic caused many Americans to migrate out of big cities to less crowded communities. For defined contribution plan sponsors, this means that many current or former employees could have moved over the past year. And if they have, they might not have contacted plan recordkeepers to update their mailing addresses.

The pandemic-driven migration out of big cities could lead to more missing participants, and going forward, more small, stranded accounts. Not only are current addresses of terminated participants much more difficult to track down using electronic searches than sponsors and recordkeepers might believe, but in too many cases, the addresses of current employees are out of date.

This is often surprising because, understandably, sponsors and recordkeepers are likely to have more confidence in the accuracy of current employees’ information. But industry research bears this out.

Retirement Clearinghouse’s recently published study about the process and science of locating lost and missing participants, “Improving the Effectiveness of Electronic Missing Participant Searches,” tested 17 separate electronic search (E-search) databases, falling into five general categories, against small control groups of plan participants:

• High-Confidence Address Group: Consisting of 997 participants whose addresses were believed “good.”
• Low-Confidence Address Group: 998 participants whose addresses were believed “bad” based on returned mail.
• No Address Group: 241 participants with no address on file.
• Deceased Group: 699 participants believed to be deceased, based on file status.

One of the significant findings of our study involved a much higher incidence of stale addresses in the “High-Confidence Address Group” than we expected—33.2%, twice what we thought we would observe based on previous research. In other words, many 401(k) plans likely have significant “hidden” percentages of stale addresses which don’t set off any red flags during periodic searches.

Optimize Electronic Searches

The U.S. Department of Labor recently issued guidance on how retirement plan fiduciaries can go about locating missing participants. While this guidance is helpful and well-intentioned, and provides best practices for finding lost plan participants, it doesn’t offer definitive criteria for what a truly diligent search should entail.

Many plan sponsors utilize E-searches to locate missing participants, but which type of search, and which database, has the highest degree of accuracy?

The Retirement Clearinghouse study referenced above reported that a search of a specific credit service bureau database performed best. However, our research also found that a proprietary algorithm, when used alongside multiple E-searches, could deliver an optimized result which is more reliable than any single E-search method.

When compared to the standalone credit bureau search, this optimized search with the proprietary algorithm increased the reliability of search results across all participant control groups. The enhanced search made updated address search results 10% to 20% more reliable, and made life status search results 3.1% more reliable.

Regardless of whether or not Americans’ migration out of big cities continues, plan sponsors should utilize robust missing participant search techniques to ensure participants’ addresses remain up-to-date—fulfilling their fiduciary duty as well as ensuring hard-earned benefits are received by past and present plan participants.