The Definitive Guide to Missing Participants
- What is a Missing Participant?
- Why Plan Sponsors Should be Concerned About Missing Participants
- What Causes Missing Participants?
- The Magnitude of the Missing Participant Problem
- What Regulations Apply to Missing Participants?
- Sources of Uncertainty for Plan Sponsors
- Best Practices for Finding Missing Participants
- What to Look for in Missing Participant Search Services
- Learn More About Missing Participants
- RCH’s Missing Participant Search Service
What is a Missing Participant?
- Returned mail
- Returned emails
- No recent web account or phone activity
- An outstanding, uncashed distribution check
Why Plan Sponsors Should be Concerned About Missing Participants
- For plan sponsors, missing participants can cause administrative burdens, increased plan costs and fiduciary risk.
- Missing participants are viewed as a more-critical problem when they are at or near a distributable event (ex. – a required minimum distribution). When a distribution occurs or is due, the Internal Revenue Service (IRS) is keen to collect on deferred taxes, and the Department of Labor (DOL) has a natural interest in ensuring that participants receive the benefits owed to them.
- For plan sponsors, missing participants can lead to plan audits, where the plan’s policies and procedures for locating missing participants can be scrutinized.
- In the present environment, plan sponsors – particularly sponsors of active plans – complain that they operate with insufficient guidance in locating missing participants, and are sometimes subject to inconsistent enforcement actions.
- For participants, not have a correct mailing address may result in a range of sub-optimal outcomes, including not being aware of major plan changes (ex. – investment changes, recordkeeper transitions, or plan terminations), missed transactions (ex. – uncashed checks) or even forgetting about the account completely.
What Causes Missing Participants?
- Employee turnover / job-changing: DC plan participants change jobs 10 times over the course of a 40-year career. Each year, 14.8 million DC participants will change jobs
- Relocation: Americans will move almost 12 times over the course of a lifetime. In any given year, almost 1 of every 6 Americans will relocate.
- Mortality: 16% of plan participants will die between 40 and 65. One of six participants die prior to normal retirement age
- Lack of retirement savings portability: Barriers to portability result in high volumes of cashouts, plus a growing number of accounts that are “stranded” at job change
- Plan features and changes: Auto enrollment increases the number of small-balance and “unknown” accounts, particularly at low deferral rates. In addition, events occur that change key elements of the plan, such as company mergers, acquisitions, name changes, recordkeeper transitions, etc.
The Magnitude of the Missing Participant Problem
- 1 of 5: Re-locations will result in a missing participant
- One-third: Participants learn of a retirement account with a previous employer they did not realize they had
- 60%: Participants who prefer an automated process to update address or consolidate accounts
- 23%: Would utilize a lost & found database to locate a stranded account
- 9%: Participants who would not verify their address if asked by a former employer
Now, new research published by RCH in January 2021 suggests that there could be an even larger problem with stale addresses for terminated participants with no obvious "red flags" (ex. - returned mail). For participants whose addresses were previously believed to be "good" -- the study revealed twice the incidence of stale addresses than were expected.
What Regulations Apply to Missing Participants?
- DOL FAB 2014-01: This guidance was issued in conjunction with the obligation of plan fiduciaries to search for lost and missing participants upon termination of a defined contribution plan.
- DOL Best Practices for Pension Plans: Describes a range of best practices fiduciaries of retirement plans, such as 401(k) plans, should consider as steps their plan could take to help reduce missing participant issues and ensure that plan participants receive promised benefits when they reach retirement age.
- DOL Compliance Assistance Release 2021-01: Outlines the general investigative approach that will guide all of EBSA’s Regional Offices under the Terminated Vested Participants Project and facilitate voluntary compliance efforts by plan fiduciaries
- DOL Field Assistance Bulletin 2021-01: Authorizes, as a matter of enforcement policy, plan fiduciaries of terminating defined contribution plans use of the PBGC missing participant program for missing or nonresponsive participant’s account balances.
- IRS Field Directive regarding Lost and Missing Participants and RMDs (10/19/17): This guidance directs IRS examiners not to challenge a qualified plan as failing to satisfy the RMD standards under the Code provided that the plan takes the appropriate steps in seeking to locate the participant.
- PBGC Guidance - 82 Fed. Reg. 60,800 – in conjunction with PBGC expansion of PBGC missing participant program. The regulation requires that plan administrators conduct a diligent search as a prerequisite to participating in the program.
- SEC Rule 17 CFR § 240.17Ad-17 – The regulation describes search efforts that must be conducted by transfer agents and broker-dealers who maintain accounts of lost or missing accountholders.
- National Council of Insurance Legislators Model Law. The Model law was enacted to ensure the timely payment of death benefits to beneficiaries.
- OCC website: Each state has an unclaimed property program. Before sending the account balance to the state, the bank is usually required to try to contact the customer. Some banks publish the names of the account holder in a local newspaper. Some banks send a letter to the last known address of the account holder. The bank will turn over the account balance to the state if there is no contact from the account holder.
Sources of Uncertainty for Plan Sponsors
- Lack of Guidance: The most recent guidance from the Department of Labor in January 2021, while very helpful in identifying a range of best practices, does not establish "bright line" rules that plan sponsors can follow.
- Inconsistent Enforcement Positions: Plan sponsors claim to receive inconsistent enforcement actions during audits, including extreme requirements to “keep searching every year, indefinitely” and to “do whatever it takes” including contacting former co-workers and family, or to notify participants of audit actions.
- Fiduciary Risk: Failure to locate missing participants can result in increased penalties, risk of plan audits and potentially – a breach of fiduciary duty.
Best Practices for Finding Missing Participants
What to Look for in Missing Participant Search Services
- Experience: Track record of successful location of missing participants, under multiple regulatory regimes.
- Results: Can demonstrate a 90-95% success rate in finding an updated address.
- Reliability: Beyond mere delivery of a result, how reliable is the result? While no search process is 100% reliable, your search provider should explain how they've tested & optimized their search process to maximize its reliability.
- Affordability: Offers a cost-effective, low-cost automated process for handling a large (and potentially recurring) volume of missing participant searches.
- Flexibility: Offers multiple search levels, depending on different search requirements.
- Reporting: Delivers access to a complete online portal, including reporting, ad hoc inquiry and spreadsheet-based output, including filterable results.
- Privacy & Security: All data is securely transmitted and stored. Provider is SOC 2-certified.
- Audit Trail: All search history and participant interaction are saved for audit trail purposes.
- Commitment to Continuous Improvement: Provider is committed to continuously updating and improving search processes to enhance reliability.
Learn More About Missing Participants
Five Tips for Documenting Missing Participant Searches
The Important Task of Determining Participants’ Life Status
Dialing Up the Intensity of Missing Participant Searches
Why Missing Participants are So Misunderstood
What’s missing from many plans? Current addresses for participants
5 Considerations for 401k Sponsors About Missing Participants
New 401k Missing Participant Research Reinforces DOL Guidance
401(k) Truth Bomb: Missing Participants are Bad, 401(k) Cashouts are Worse
Regulators and Policy Advocates Focus on Retirement Savings Portability
Encouraging 401(k) Account Consolidation is the Key to Reducing Lost & Missing Participants
Missing Participants: An Ounce of Prevention Equals a Pound of Cure
New Insights into the Problem of Missing Participants
A New Solution to Tackle the Old Problem of Missing Participants
In Search Of: Guidance for Locating Missing Participants
Bringing Clarity to the Murky Problem of Missing Participants
Reducing the Burden of Missing Participants
Pitfalls Associated with Lost & Missing Participants
Lost in Transition – Addressing the Problem of Missing Participants (PLANSPONSOR)
Dialing Up the Intensity of Missing Participant Searches
Addressing the Problem of Missing Participants
RCH's Missing Participant Search Service
For more information, download the RCH Address Location Service information deck, email sales@RCH1.com or call (866) 827-9608.