Many retirement plan participants leave defined contribution accounts with their former employers when their employment is terminated. Unfortunately, many of them forget they even had an account. And even though they are not actively making contributions they are still considered participants of the plan. Participants include participants and beneficiaries who are either unresponsive to requests sent by the plan, or whose mail is returned to the employer or plan sponsor as undeliverable. These participants are considered "Missing".
Employers and plan sponsors have a fiduciary responsibility to provide communication, statements and disclosures to these participants just as often as active employees and locating these participants has proven to be frustrating and time-consuming.
In 2018 the Department of Labor (DOL) recovered more than $1.1 billion for thousands of missing participants in pension plans and is directing its regulatory firepower on defined contribution plans and ramped up their audits of retirement plans with missing participants, a development that has many plan sponsors on edge. The Internal Revenue Service (IRS) is also closely monitoring how employers are dealing with these missing participants and have increased their enforcement activities with missing participants, putting pressure on plan sponsors to locate former employees or their beneficiaries so they can receive the benefits they’re owed by the plan.
An employer’s fiduciary obligation under the Employee Retirement Income Securities Act (ERISA) requires that they take all reasonable measures necessary to locate a missing terminated participant with an account balance and distribute that account balance when efforts to secure a distribution election have failed.
The DOL and IRS have therefore published the following guidance for locating missing participants. Failure to use these search methods can be a breach of fiduciary duty under ERISA.
Finding Lost or Missing Participants
Use Certified Mail: Send a certified letter to the participant’s last known address. If the participant signs for it, you have confirmation of receipt and verification the mail was delivered.
Check Related Records: Review other company and plan related records for an updated information. Your company’s health insurance or payroll provider may have a more up-to-date mailing address. You may also want to ask current employees if they know how to get in touch with the missing participant.
Check with a Designated Beneficiary: If the missing participant has completed beneficiary information you may be able to contact the designated beneficiaries to obtain current contact information. You should also check employee records for an “in case of emergency” contact. This person may know how to reach the participant.
Use Free Electronic Search Tools: There are several free internet search options including popular social network sites, search engines and public record databases such as those for licenses or real estate holdings.
You can also try contacting missing participants through their cell phone number and email address since they are less likely to change this information. It is recommend that you verify and update both of these things as part of your employee exit interview. Before an employee leaves, Human Resources should also verify the participant’s current address and remind them about their 401(k) accounts.
IMPORTANT: Document all your efforts to locate missing participants as your actions to actively search for missing participants can be used to defend against possible DOL claims.
Additional Search Methods
If an employer or plan sponsor is unable to find the missing participant using the above search steps, you must consider additional search methods that may involve fees, such as fee-based internet searches, commercial locator services, credit reporting agencies, information brokers and investigative services. The DOL suggests that plan fiduciaries should consider relevant facts and circumstances to determine if other action should be taken. One factor to consider is the size of the account balance in question. Records should be kept documenting your decision to pursue or not pursue a particular approach. The additional costs associated with these search methods can be charged to the lost participant’s account so some methods would only be reasonable for large account balances.