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By: Hannah DeLuca, W. Andrew Douglass, and Elizabeth Bray, Polsinelli P.C.
This article addresses the steps that plan sponsors and fiduciaries must take to locate and notify missing participants in qualified defined contribution and qualified defined benefit plans regarding benefits that are due to them under the plan.
PLAN ADMINISTRATORS ARE OBLIGATED UNDER THE Employee Retirement Income Security Act (ERISA) to conduct a diligent search to locate missing participants and beneficiaries. The fact that participants and beneficiaries cannot be located poses a problem for plan administrators in active plans when a distribution is required and in terminated plans for which the plan administrator must liquidate the benefit trust. Recently, the Pension Benefit Guaranty Corporation (PBGC) opened its missing participant program to terminating defined contribution plans and other previously excluded defined benefit plans. This article summarizes guidance regarding missing participants, provides an overview of the revised PBGC program, and offers tips for plan administrators to handle (and avoid) missing participant issues.
Missing participants (which term includes beneficiaries and alternate payees with accrued benefits as used in this article) become an acute issue for qualified retirement plan sponsors, administrators, or other fiduciaries in several circumstances, such as:
While it may seem unlikely that a participant would not remain vigilant about his or her retirement benefits, there are a variety of reasons individuals become missing participants. Such reasons include:
Locating missing participants is particularly important in ERISA-governed plans because it implicates the fiduciary duties of responsible parties. To assist plan fiduciaries in these efforts, the Department of Labor (DOL) and the PBGC have provided detailed guidance on steps to take to locate missing participants in both defined contribution plans (DC plans) and defined benefit plans (DB plans). This guidance is summarized in the following sections.
When terminating a defined contribution plan, the plan sponsor and plan fiduciaries must notify participants that the plan is being terminated and benefits are being distributed. This requirement implicates ERISA § 404(a)’s prudent man standard of care for plan fiduciaries. ERISA § 404(a) (29 U.S.C. § 1104). While the decision to terminate a plan is a settlor decision and not a fiduciary decision, the fiduciary responsibility provisions of ERISA govern the implementation of plan termination, including steps to locate missing participants, and the choice of distribution options for a missing participant’s account balance. DOL Field Assistance Bulletin 2014-01 (Aug. 14, 2014) (FAB 2014-01). Further, the IRS has ruled that in the context of a terminating plan, all of a plan’s assets must be distributed as soon as administratively feasible after plan termination. Rev. Rul. 89-87; Prop. Treas. Reg. § 1.412(b)–4(d)(1).
DOL Field Assistance Bulletin 2014-01
FAB 2014-01 sets forth guidance on what the DOL considers reasonable efforts to locate missing participants when terminating defined contribution plans such that if such efforts are taken, the terminating plan’s fiduciary duties will generally be deemed satisfied. Under earlier guidance, the DOL required that plan fiduciaries utilize the Social Security Administration’s and the IRS’s address forwarding services to locate plan participants or beneficiaries. Those programs were discontinued given expanded internet search options.
FAB 2014-01 requires that the following actions be taken to locate missing participants in a DC plan (in no particular order):
The above list is required for any distribution regardless of the participant’s account balance. However, if taking all those steps does not yield results, the plan fiduciary must make a cost-benefit analysis, weighing the facts and circumstances, to determine whether further steps are necessary.
When determining whether further steps are necessary, the plan fiduciary must take into account:
DOL FAB 2014-01 lists the following as possible additional search methods:
Distributing Accounts on Behalf of Missing Participants Who Cannot Be Located
Because all assets must be distributed for a terminating plan, if none of the fiduciary’s search efforts are successful, the fiduciary’s next step is to decide how to distribute the account on behalf of the missing participant. Prior to the expansion of the PBGC missing participant program, the main approach was to follow the safe harbor distribution rules for terminating individual account plans (e.g., 401(k) plans) under 29 C.F.R. § 2550-404a-3 and the safe harbor for automatic rollovers of mandatory cashout distributions, as contemplated by FAB 2014-01. Now, the PBGC program, described further below, is also available.
Charging Plan Accounts for Missing Participant Search Expenses
If the plan fiduciary determines that a search method that involves costs is warranted, an additional decision to consider is whether to charge the participant’s account for such fees. The DOL permits the charge to individual participants in the case of charges related to distributions and the accounts of separated vested participants, so long as the amount and nature of the charges are prudent. DOL Field Assistance Bulletin 2003-03 (May 19, 2002). If participant accounts will be reduced for search fees, you should make sure the plan terms and the plan’s fee disclosures are consistent with this practice.
PBGC Missing Participants Program for DC Plans
The PBGC developed a program over 20 years ago to locate and preserve benefits for missing participants in most terminating single-employer defined benefit plans, pursuant to ERISA § 4050. The Pension Protection Act of 2006 authorized the PBGC to establish a more expansive program available to defined contribution and other plans not covered by the former program. After consulting with the DOL and IRS and issuing proposed rules in 2016, the PBGC issued final rules for its revised and expanded program. The new program is applicable for plan terminations on and after January 1, 2018 and is set forth in revised Part 4050 of C.F.R. Title 29.
DC Plan Eligibility and Optional Participation
The program is generally open to most qualified DC plans (whether single-employer, multiple-employer, or multiemployer) and plans treated as individual account plans, including applicable 403(b) plans, but excluding non-ERISA plans (e.g., non-electing church plans). However, the program is specifically limited to terminating plans and is not available for ongoing plans.
Unlike for defined benefit plans, participation by DC plans is optional. In addition, DC plan fiduciaries can decide whether to participate as either a transferring plan or notifying plan:
In addition, missing participants will be added to the PBGC’s publicly available unclaimed pension benefit database, which will now be unified for DB and DC plans participating in the PBGC program. This searchable database incorporates names of missing participants and plan information, such as the plan name, type, and termination dates and company name and address.
Importantly, the program is available not only for missing participants who cannot be located, but also for participants who (1) do not make a distribution election after receiving notice or (2) do not accept a lump sum payment. The program is only available for participants who are missing. Nonacceptance of a lump sum includes the failure to cash the distribution check by any applicable cash-by date that is at least 45 days after issuance of the check (or, in the absence of a cash-by date, by the check’s stale date under the UCC or state law, as applicable).
Generally, the requirements to participate in the DC plan program are:
Upon the termination of a defined benefit pension plan which is subject to Title IV of ERISA (i.e., a PBGC-insured plan), a plan sponsor must fully distribute all plan assets before the defined benefit plan can be terminated. Title IV contains extensive rules for terminating DB plans, including requiring covered plan administrators to either procure an irrevocable commitment from an insurer to provide for a missing participant’s benefit or transfer the benefit liability to the PBGC. The PBGC established its missing participants program to facilitate, monitor, and ensure compliance with these obligations.
In 2017, the PBGC issued final regulations to open the program to other DB plans previously excluded from coverage as well as to DC plans. In addition, the procedures for single-employer DB plans were significantly simplified. The PBGC’s final rulemaking restructures C.F.R. Part 4050 in four subparts that address different types of plans:
The following section provides an overview of the new program for DB plans, applicable for plan terminations on and after January 1, 2018. The program is limited to the context of terminating plans and is not available to ongoing plans having missing participants, even where a distribution is required. Separate rules apply for DB plans experiencing a distress termination that are not fully funded.
PBGC Missing Participants Program for DB Plans
Under the program, the PBGC either accepts a transfer of missing participant pension benefits from terminated DB plans to pay the distributees once located or helps connect missing participants with the insurance company responsible for their annuity contracts, as well as monitors the program and audit compliance.
Another significant change for the new program is to explicitly treat certain unresponsive individuals as missing participants, instead of as individuals who cannot be located. Specifically, the definition of missing now includes individuals who:
Missing participants are also added to the PBGC's unclaimed pension benefit database, which is publicly available and will be unified for both DB and DC plans participating in the PBGC program. The searchable database lists missing participants' names, as well as plan information, including plan name, type, termination dates, company name and address.
DB Plan Mandatory Participation and General Requirements
DB plans that are PBGC-insured are required to follow the program rules during the termination process for all missing participants (including participants deemed to be missing because they fail to respond to a distribution notice or accept a mandatory lump-sum distribution). This means that for each missing participant at the close-out of the plan, they must either transfer the applicable benefit transfer amount (based on the value of the accrued benefit) to the PBGC or procure an annuity for the missing participant and convey information about the annuity provider to the PBGC. Unlike for transferring DC plans, there is no all-or-nothing rule, so different missing participants can be treated differently.
The preceding paragraph does not apply to small professional services DB plans (having 25 or fewer participants) (SPS plans), which are not PBGC-insured. The program for these plans is optional under rules similar to DC plan participation discussed earlier.
Generally, the requirements for DB plans are:
Diligent Search Requirement
In order for a terminating DB plan to utilize the PBGC’s missing participant program, and before it can distribute funds to terminate, the plan administrator must perform a diligent search for each missing participant who cannot be located.
The new program substantially modifies this requirement for conducting a diligent search, modelling the new rules on the DOL’s FAB 2014-01. For DB plans, the required method depends on whether the missing participant’s benefit is valued at over $50 per month:
29 C.F.R. § 4050.104.
Missing Participants Filings
For the new program, the applicable version of Form MP replaces the Schedule MP that DB plans filed with the PBGC for a standard plan termination prior to 2018. Form MP-100 for single-employer DB plans, Form MP-300 for SPS DB plans, and Form MP-400 for multiemployer DB plans, are all available with corresponding instructions and Excel templates in draft form on the PBGC website. Similar to the Schedule MP attachments, the new forms contain:
Filers may use Excel templates furnished by the PBGC in lieu of completing the schedules.
Additional forms must be provided that are related to the termination of the plan and not specifically to missing participants, and thus are outside the scope of this article.
Plan administrators who are unable to locate participants and beneficiaries to provide notices, plan information, and plan benefits must make a diligent effort to locate these individuals to fulfill their fiduciary obligations. Some of this work can be done in advance of a distribution event based on returned mailings sent to a participant or beneficiary. Conducting a diligent search has been facilitated by the increased resources available via the internet and through readily available commercial locator services. The following list offers missing participant best practices to help responsible parties fulfill their fiduciary duties and facilitate plan administration.
Read the complete Practice Note on locating missing plan participants in the Employee Benefits and Executive Compensation module of Lexis Practice Advisor.
Hannah DeLuca, a shareholder at Polsinelli P.C., works with all types of employers, from government entities to large public companies and innovative start-ups. She enjoys guiding a variety of public and private entities, helping them become established and in compliance with relevant tax law. Hannah assists clients with navigating the complicated issues surrounding health plans, welfare plans, ERISA, DOL laws for retirement plans, and executive compensation. W. Andrew Douglass, a shareholder at Polsinelli P.C., has a prior background as an actuarial consultant in the employee benefits practice of a large public accounting firm. Andrew brings a multi-faceted approach to helping employers address the legal, financial, and administrative issues that affect their benefit plans. He also serves as chair of the Employee Benefits and Executive Compensation practice group at Polsinelli. Elizabeth Bray is an associate at Polsinelli P.C. She routinely drafts and reviews welfare plans, including group health plans, cafeteria plans, and wellness plans, as well as qualified pension, profit-sharing, and non-qualified retirement plans. Liz uses her experience to assist clients with the tax and ERISA issues that arise in connection with mergers, acquisitions, and other corporate transactions.
RESEARCH PATH: Employee Benefits & Executive Compensation > Retirement Plans > ERISA and Fiduciary Compliance > Practice Notes
For guidance on identifying employee benefit plans and programs that are subject to regulation under the Employee Retirement Income Security Act of 1974 (ERISA), see
> IDENTIFYING ERISA EMPLOYEE BENEFIT PLANS
For a discussion on the various fiduciaries of employee benefit plans under ERISA, including their duties and obligations, see
> FUNDAMENTALS OF ERISA FIDUCIARY DUTIES
For the steps that plan sponsors and fiduciaries must take to locate and notify missing participants when terminating qualified defined contribution and qualified defined benefit plans, see
> LOCATING MISSING PARTICIPANTS WHEN TERMINATING DEFINED CONTRIBUTION AND DEFINED BENEFIT PLANS
For an explanation of the potential employer liability and notice obligations under ERISA when there is a cessation of operations at a facility that results in the termination of employment of retirement-plan-eligible employees, see
> ERISA § 4062(E): SUBSTANTIAL CESSATION OF OPERATIONS LIABILITY FOR DEFINED BENEFIT PLANS