The Fundamentals of Locating Missing Participants

What is a Missing Participant IRA?

ANSWER: A Missing Participant IRA is a specialized individual retirement account (IRA), established when a terminating defined contribution savings plan is unable to locate a participant and distribute their retirement savings prior to plan termination, subjecting the participant's balances to a force out process.

History of Missing Participant IRAs

  • In 2001, the 107th Congress of the United States passed EGTRRA, otherwise known as the Economic Growth Tax Relief Reconciliation Act. EGTRRA set forth rules dictating that employer-sponsored, qualified plans could make automatic distributions to terminated employees without their consent for small balances (less than $5,000), provided that balances between $1,000 and $5,000 be automatically rolled over to a Safe Harbor IRA.
  • In 2004, the Department of Labor (DOL) issued final rules describing the automatic rollover safe harbor for plan fiduciaries tasked with choosing Safe Harbor IRA providers, as well as the initial IRA investments. The DOL’s rules applied to distributions made on or after March 28, 2005.
  • In 2014, the DOL issued Field Assistance Bulletin 2014-01, which identified the reasonable steps that terminating plans must take in order to locate plan participants.

How Do Missing Participant IRAs Work?

In a plan termination process, when a distribution is imminent, FAB 2014-01 describes a two-step process that defines “reasonable” search steps that a plan fiduciary should take to locate unresponsive or missing participants, including:

Step 1:

  • Send notice via USPS Certified Mail
  • Check related plan & employer records for more up-to-date information
  • Check with named beneficiary for more up-to-date information
  • Make use of internet search tools that do not charge a feee

Step 2:

  • Consider if additional search steps are appropriate, based on size of balance and cost of further search efforts (ex. – internet, commercial search tools, etc.)

If the missing participant (or their beneficiary) is not located, then the sponsor can distribute the participant’s savings to a) a safe harbor IRA, b) an interest-bearing bank account, or c) to state unclaimed property – with the DOL favoring the safe harbor IRA option.

On behalf of the plan, the plan’s recordkeeper or Missing Participant IRA provider will notify the eligible participants about the pending force-out, providing them with the required disclosures, and giving them instructions and adequate time to take control of their situation prior to force-out. This period of time is typically 30 to 60 days.

If the participant takes no action, their retirement savings are automatically rolled over to a Missing Participant IRA. At this point, the former plan sponsor’s fiduciary responsibility to their former participant is concluded, and the former participant is now an IRA accountholder.

Once in the Missing Participant IRA, the former participant’s savings are automatically invested in a default investment vehicle, designed to protect principal and to provide liquidity. The new Missing Participant IRA accountholder is typically mailed a Welcome Kit, and is invited to take charge of their retirement savings in any manner they see fit.

Related Terms

401(k) Plan Termination

Automatic Rollover

Automatic Rollovers

Auto Rollover

Auto Rollover Program

Auto Rollover IRA

Automatic IRA Rollover

Retirement Clearinghouse’s Missing Participant IRA Services

We believe that the RCH automatic rollover service, delivered through the RCH Terminating Plan service, is clearly the best Missing Participant IRA service in the market today. RCH is the only provider proven to reduce cash outs, to offer Missing Participant IRA accountholders with a beneficial monthly fee structure, and with a proven track record of consolidating former participants’ retirement savings into an active retirement plan or existing IRA.

When considering a Missing Participant IRA provider, we encourage plan sponsors to consider the following criteria:

  • Cashout rates: The percentage of Missing Participant IRA-eligible participants that cash out their retirement savings completely, prior to moving to a Missing Participant IRA. RCH is the only provider proven to reduce cashouts rates by over 50%, vs. industry averages (26% v. 55%).
  • Commitment to account consolidation: RCH has a demonstrated commitment, ability and track record in consolidating retirement savings balances. Most Missing Participant IRA service providers prefer that IRAs stay on their books as long as possible, incurring ongoing fees and offering the provider with an asset management opportunity. RCH takes the opposite approach. We believe it’s best to move retirement savings forward to an active plan or to an existing IRA.
  • A unique monthly fee structure: Because RCH actively seeks to consolidate Missing Participant IRA assets with the account holders’ existing retirement accounts, RCH charges only for the time the account is open – a monthly fee – rather than an annual fee paid in advance. Using a monthly fee structure is highly-advantageous for short-term Missing Participant IRA accountholders.
  • Progressive distribution fee structure: RCH employs an algorithm that lowers the distribution fee as the Missing Participant IRA account falls below a threshold.
  • Investment Choice: RCH offers over 30 different investment options in five different fund families from which to choose, should an accountholder wish to move their savings out of the default Missing Participant IRA fund – with no transaction fees or lock up provisions on any investment options.
  • Customer Service: The RCH Service Center is available to accountholders Monday – Friday, 8 a.m. to 7 p.m. Eastern Time, with bi-lingual support including multiple, full-time native Spanish-speaking representatives. RCH also provides a fully-functional web portal for customer access, account maintenance and self-service.
  • Independence: RCH is independent, transparent and un-conflicted, with no hidden fees paid to third parties, and no lock-up provisions in our default investment funds.

Taken together, these attributes clearly establish the RCH Terminating Plan service as the most fiduciary-friendly Missing Participant IRA service in the industry.

The Fundamentals of Locating Missing Participants

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