Finding Missing Participants in Your Defined Contribution Plan

When participants terminate employment many often leave their defined contribution accounts with their former employers. Over time, many simply forget they even had an account. In these cases, they are still participants even though they are not actively contributing to their accounts. Finding missing participants can be frustrating and time-consuming, but employers and plan sponsors have the fiduciary responsibility to provide communication, statements and disclosures to them just as often as active employees.

Lately, the Department of Labor (DOL) and IRS have been closely monitoring how employers are dealing with missing participants and increasing their enforcement activity. Missing 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.

The DOL has been ramping up its audits of retirement plans with missing participants and putting pressure on plan sponsors to locate former employees or their beneficiaries so they can receive the benefits they’re owed by the plan.

Finding these participants can be frustrating, however, an employer’s fiduciary obligation under 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. We recommend that you verify and update both of these things as part of your employee exit interview. Before an employee leaves, HR can also verify the participant’s current address and remind them about their 401(k) accounts.

Make sure all your efforts to locate missing participants is well documented. Records of steps taken 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.

Please contact your Watkins Ross administrator if you have questions about locating missing participants in your defined contribution plan.

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