Missing Participants: The Search Continues

JOELLE TAVAN, February 22, 2022 

For a number of years, the Employee Benefit Security Administration (EBSA), the Department of Labor (DOL)’s branch responsible for administering and enforcing the fiduciary, reporting, and disclosure provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), has made missing plan participants one of its key areas of focus in its investigations program. Specifically, EBSA assesses whether plan fiduciaries and service providers are taking appropriate and effective action to locate participants and beneficiaries who are entitled to an ERISA plan benefit, but have not been responsive to routine plan communications. 

ERISA has always required that plan fiduciaries maintain adequate plan records and distribute plan-related materials to participants and beneficiaries; however, there was no specific DOL guidance regarding missing participants, outside the context of plan terminations, until 2021, when the DOL issued such guidance in three distinct publi­cations:

• “Best Practices for Pension Plans” guidelines, which describe practices plan fiduciaries should consider to mitigate missing participant issues;
• Compliance Assistance Release 2021-01, which outlines the general approach to be taken in investigations by EBSA Regional Offices under its Terminated Vested Participants enforcement project; and
• Field Assistance Bulletin 2021-01, which announces the DOL’s temporary enforcement policy on terminating defined contribution plans’ use of the Pension Benefit Guaranty Corporation (PBGC) Missing Participant Program.

Each of these important DOL publications is discussed below.

“Best Practices for Pension Plans” Guidelines

The Best Practices for Pension Plans guidance outlines best practices fiduciaries of defined benefit and defined contribution plans can follow to establish an appropriate process for locating missing participants and beneficiaries and ensuring that they timely receive the benefits to which they are entitled.

Identifying “Red Flags”

The guidance provides that the first step in addressing issues related to missing participants is for plan fiduciaries to identify “red flags” with respect to their plans, including the following conditions or circumstances:

• More than a small number of missing or nonresponsive participants.
• More than a small number of terminated vested participants who have reached normal retirement age, but have not started receiving their pension benefits.
• Missing, inaccurate, or incomplete contact information, census data, or both (e.g., incorrect or out-of-date mail, email, and other contact information, partial social security numbers, missing birthdates, missing spousal information,or placeholder entries).
• An absence of sound policies and procedures for handling mail returned marked “return to sender,” “wrong address,” “addressee unknown,” or otherwise, and undeliverable email.
• An absence of sound policies and procedures for handling uncashed checks (as reflected for example, by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks, or failure to reclaim stale uncashed check funds in distribution accounts).

Examples of Best Practices

Next, the guidance describes general practices and procedures maintained by plans that had low numbers of missing and nonresponsive participants, as verified through DOL investigations. The DOL notes that these practices may not all be appropriate for every plan, but plan sponsors should consider them as part of reviewing their missing participant procedures, and implement changes as appropriate. Examples of the best practices identified by the DOL include the following:

Maintaining accurate census information for the plan’s participant population

• Contacting participants, both current and retired, and beneficiaries on a periodic basis to confirm or update their contact information. Relevant contact information could include home and business addresses, telephone numbers (including cell phone numbers), social media contact information, and next of kin/emergency contact information.
• Including contact information change requests in plan communications.
• Flagging undeliverable mail/email and uncashed checks for follow-up.
• Maintaining and monitoring an online platform for the plan that participants can use to update contact information for themselves.
• Providing prompts for participants and beneficiaries to confirm contact information upon login to online platforms.
• Regularly requesting updates to contact information for beneficiaries, if any.
• Regularly auditing census information and correcting data errors.
• In the case of a change in recordkeepers or a business merger or acquisition by the plan sponsor, addressing the transfer of appropriate plan information (including participant and beneficiary contact information) and relevant employment records (e.g., next of kin information and emergency contacts).

Implementing effective communication strategies

• Using plain language and offering non-English language assistance.
• Stating upfront and prominently what the communication is about — e.g., eligibility to start payment of pension benefits, a request for updated contact information.
• Encouraging contact through plan/plan sponsor websites and toll free numbers.
• Building steps into the employer and plan onboarding and enrollment processes for new employees, and exit processes for separating or retiring employees, to confirm or update contact information, confirm information needed to determine when benefits are due and to correctly calculate the amount of benefits owed, and advise employees of the importance of ensuring that the plan has accurate contact information at all times.
• Communicating information about how the plan can help eligible employees consolidate accounts from prior employer plans or rollover IRAs.
• Clearly marking envelopes and correspondence with the original plan or sponsor name for participants who separated before the plan or sponsor name changed. 

Missing participant searches

• Reviewing related plan and employer records for participant, beneficiary and next of kin/emergency contact information.
• Contacting designated plan beneficiaries and the employee’s emergency contacts listed in the employer’s records, in an effort to secure updated contact information.
• Using free online search engines, public record databases (such as those for licenses, mortgages and real estate taxes), obituaries, and social media to locate individuals.
• Using a commercial locator service, a credit-reporting agency, or a proprietary internet search tool to locate individuals.
• Attempting contact via United States Postal Service certified mail, or private delivery service with similar tracking features if less expensive.
• Attempting contact via other available means such as email addresses, telephone and text numbers, and social media.
• If participants are nonresponsive over a period of time, using death searches (e.g., Social Security Death Index) and, if death is confirmed, redirecting communication to beneficiaries.
• Reaching out to the colleagues of missing participants.
• Registering missing participants on public and private pension registries with privacy and cyber security protections (e.g., National Registry of Unclaimed Retirement Benefits).
• Searching regularly using some or all of the above steps.

Documenting procedures and actions

• Reducing the plan’s policies and procedures to writing.
• Documenting key decisions and the steps and actions taken to implement the policies.
• Working with the plan recordkeeper to identify and correct shortcomings in the plan’s recordkeeping and communication practices, including establishing procedures for obtaining relevant information held by the employer.

Terminated Vested Participants in Defined Benefit Plans (DOL Compliance Assistance Release 2021-01)

The DOL also made public an internal memorandum regarding EBSA’s Terminated Vested Participants (TVP) enforcement project. The memorandum provides insight into EBSA’s enforcement program, including the reasons for opening investigations, the type of information and documents investigators generally request from plan sponsors, and the systemic issues they look for in their audits.

The DOL states that an investigation may begin based on its review of a plan’s Form 5500. For example, a Form 5500 reporting a large number of retired participants or TVPs who are entitled to future benefits might indicate systemic issues with the plan’s administration, particularly issues related to keeping track of TVPs and beneficiaries, and timely distributing benefits. The DOL also notes that plan sponsor bankruptcies, mergers or acquisitions can result in the loss of participant data and, thus, may indicate a situation in which there exists a higher risk of missing participants.

The memorandum describes the various documents EBSA investigators generally request from plan sponsors at the beginning of an investigation, including plan documents, summary plan descriptions, participant census records noting the employment status of each participant and their contact information, and actuarial reports or other reports prepared by the plan’s actuary. Investigators also request and examine plan procedures for communicating with TVPs and beneficiaries, and evaluate their policies and practices regarding the preparation and distribution of benefit statements and other participant communications. Investigators also seek information to determine whether plans are taking sufficient steps to address missing participants; they will examine internal procedures and practices for reaching out to, and searching for, unresponsive TVPs, as well as contracts and experience with service providers who perform recordkeeping and missing participant searches for the plans.

ESBA investigators will then examine the provided documents and other relevant information to identify compliance issues, such as:

• Systemic errors in plan recordkeeping and administration that create a risk of TVPs failing to enter pay status.
• Inadequate procedures for identifying and locating missing TVPs or their beneficiaries.
• Inadequate procedures for contacting TVPs nearing normal retirement age to inform them of their right to commence benefit payments.
• Inadequate procedures for contacting TVPs who are not in pay status at, or near, the date that they must commence receiving required minimum distributions.
• Inadequate procedures for addressing uncashed distribution checks.

The DOL concludes its memorandum on a positive note, by confirming that absent significant errors or widespread fiduciary breaches, and subject to fiduciaries taking appropriate corrective actions to remedy compliance shortfalls, EBSA generally will not cite plan fiduciaries with specific ERISA violations.

PBGC Missing Participants Program (DOL Field Assistance Bulletin 2021-01)

In conjunction with the “Best Practices for Pension Plans” Guidelines and Compliance Assistance Release 2021-01, the DOL also issued Field Assistance Bulletin 2021-01 (FAB) 2021-01, which announces a temporary enforcement policy on terminating defined contribution plans’ use of the PBGC Missing Participants Program (the “Program”). The temporary enforcement policy applies to fiduciaries of terminating defined contribution plans and qualified termination administrators (QTAs) of abandoned individual account plans.

As background, the DOL currently provides a fiduciary safe harbor under DOL Reg. § 2550.404a-3 for use in making distributions to missing and nonresponsive participants and beneficiaries from terminated defined contribution plans and abandoned plans. The safe harbor generally requires that distributions be rolled over to an IRA, although in limited circumstances fiduciaries may make distributions to certain bank accounts or to a state unclaimed property fund. If the safe harbor requirements are met, the plan fiduciary or QTA will be deemed to have satisfied ERISA’s requirements with respect to the distribution of benefits.

The PBGC established the Program to hold retirement benefits for missing participants and beneficiaries in most terminated plans and to help participants and beneficiaries receive their benefits. For many years, the Program covered only PBGC-insured single-employer defined benefit plans. The Program was later expanded to cover defined contribution plans that terminate on or after January 1, 2018. See page 7 of the Benefits Report — Trucker Huss’s article on the Program.

In FAB 2021-01, the DOL states that, pending further guidance, it will not pursue fiduciary breach claims against plan fiduciaries or QTAs that transfer missing participants’ accounts to the Program, instead of using other available mechanisms (e.g., safe harbor IRAs, escheatment — provided that certain conditions are met, and the fiduciary or QTA complies with FAB 2021-01 and acts in good faith in reasonably interpreting the law. The DOL also indicates that, unless the terms of the plan do not permit it, the fee charged by the PBGC for certain accounts transferred to the Program may be paid for from the transferred account.

The DOL notes, however, that the temporary enforcement policy does not preclude the DOL from pursuing ERISA violations for failure to diligently search for participants and beneficiaries prior to transferring their accounts to the PBGC or for failure to maintain plan and employer records. Additionally, the temporary enforcement policy does not legally protect plan fiduciaries or QTAs from civil claims made by plan participants or their beneficiaries. Nonetheless, the DOL’s announcement is welcome news for fiduciaries and QTAs who opt to take advantage of the Program.

Action Steps

In light of the DOL’s three-part guidance, plan fiduciaries of defined benefit and defined contribution plans are encouraged to review their administrative processes and procedures, and to work with their plan recordkeepers to ensure appropriate measures are taken to address and reduce missing participant issues. Those measures should be clearly described in a written policy which may include, for example, the plan’s process to keep accurate census information for its population and the procedures for searching for missing participants. The policy should also describe the plan sponsor’s procedures for handling uncashed checks. Additionally, on-going efforts to locate missing participants should be documented so that, in the event of a DOL investigation, plan fiduciaries can demonstrate their diligent efforts to search for missing participants and pay plan benefits.

Please contact the author or your Trucker Huss attorney if you have any questions.