Determine the Best Missing Participant Solution to Manage Risks

December 3, 2013 ( - In the ever changing landscape of retirement and benefit plans, the issue of missing participants continues to compound for plan sponsors.

The issue creates greater urgency than ever before because it will affect de-risking strategies and programs such as transferring pension fund liability to a third party, lump sum distribution options, and most recently, shifting delivery of retiree health care benefits. The effectiveness of these programs are all jeopardized when plan sponsors and managers are unable to communicate with participants and beneficiaries. In addition, the issue of missing and lost participants continues to attract greater attention from the U.S. Department of Labor.

In the past year, plan sponsors have faced another complication. Solutions that were once available have disappeared, leaving many searching for cost-effective methods to locate and communicate with missing and lost participants.

Roadblocks to Resolution

The problem of missing and lost participants typically begins when the participant fails to update contact information following a relocation, or when the participant fails to provide instruction for allocation of their benefits. This is true of beneficiaries as well, who may receive communications yet fail to respond, or may fail to update contact information.

Today’s economic climate could continue to exacerbate the problem. Employers are adapting to current conditions by relying on a flexible and agile workforce. As employees switch jobs, they often fail to update their contact information. In addition, plan design changes such as auto enrollment have helped participants begin the process of saving for retirement. Auto enrollment has also created some of the missing participant issues because employees do not always look at their pay stubs, move on to another company, and may not be aware that a benefit is due to them. This issue is more prevalent in the retail sector.

Previously, the Internal Revenue Service (IRS) provided a letter forwarding service. For a small fee, the IRS would search its database for missing or lost participants and forward communications. Last year, the IRS ceased the service. The Social Security Administration provides a similar service, however at $35 per participant, that option can be costly and the delivery of the notice takes months to complete.  At Risk Compliance Performance Solutions (RCP), we have seen a backlog of up to 12 months with this service. In addition, the Social Security Administration does not supply a report for the plan sponsor with the address used to mail to the participant. The plan sponsor will have an incomplete audit trail with this process.

Growing Challenges on the Horizon

With no clear guidelines regarding missing participants and uncashed checks, the retirement plan industry is clouded by confusion as to what exactly will fulfill fiduciary responsibility to communicate with participants.  Is an address of record mailing enough?  Is it sufficient to conduct a search for an updated address and a first class mailing?  Perhaps a certified letter is a better practice since a signature is required?  Given the lack of clear direction or options, plan sponsors are left to make the choice and each company chooses differently based upon the advice of their ERISA counsel (which varies), their company’s risk tolerance and their general culture and approach to their employees.

Our clients often ask about the requirement to locate missing participants. Plan sponsors are required to meet disclosure requirements for annual funding notices, summary annual reports, plan descriptions and other notifications, yet those requirements do not define what constitutes compliance when correct participant or beneficiary data is not available. For example, plan sponsors are required to make a “good faith” effort to locate missing participants if the plan owes benefits. Yet industry experts disagree on what qualifies as a “good faith” effort.

In some cases, action is required of the participant or beneficiary. For example, the plan sponsor is required to present participants with benefit options and allow the participant to choose a form of payment in situations such as a lump-sum distribution. When that communication fails, the plan sponsor’s effort could be stalled. This same issue applies as more and more companies discontinue health care benefits for their retirees. The retirees are required to review their options and respond to the plan sponsor, yet with an outdated address, these communications fail and the plan sponsor has the additional burden of tracking down the retiree.

When communications are returned because of inaccurate data, notices can pile up on the plan sponsor’s mailroom floor awaiting staff to code the participant’s account as undeliverable. If returned mail is not managed properly, plan sponsors can mail repeatedly to the wrong address.

Often, benefit checks are returned to the plan sponsor or delivered to an unintended recipient, creating the additional escalating problem of uncashed checks. The problem of uncashed checks is caused by both participants and beneficiaries that fail to update contact information or respond to requests for action. Uncashed checks pose a variety of risks, ranging from fraud to compromised security to loss of income for both participants and beneficiaries.

An extremely costly and complex issue arises when a participant has moved or is deceased, yet mail is delivered to the participant’s outdated address. This presents a unique scenario if the current resident(s) of the home is simply throwing out mail. If communications are not being returned as undeliverable, this scenario is costly for plan sponsors who continue to mail communications and checks to the wrong address. Fraud can occur if the participant is deceased and a family member or acquaintance receives and cashes benefit checks. Recovering these funds is extremely difficult for the plan sponsor.

Finding the Right Solution

A third-party expert can provide plan sponsors with an objective assessment of their situation and recommend the best, most cost-effective solution. This means understanding the population being addressed, how best to communicate the message and drive the desired action required. This must all be overlaid with the company’s own risk tolerance and culture.

Locator services are garnering attention as an effective method for locating missing and lost participants. However, some locator services still leave the administrative burden of fixing the accounts with the plan sponsor or recordkeeper by only providing best addresses. Full service providers will supply a best address while also working to code undeliverable mail and confirm best addresses so plan sponsors can update their databases. Full service providers also will communicate with participants to confirm the need for a reissued stale dated check or facilitate an end-to-end solution when a participant cannot be found—all while providing the necessary audit trail reporting to help the plan sponsor defend against any potential problems in the future.


With objective guidance, plan sponsors can determine the right solution to the missing participant issue. By resolving the issue, plan sponsors have a clear path to de-risk and provide the best programs and services to their participants.


Mark Sweatman, president - Retirement Plan Management Services, Risk Compliance Performance Solutions (RCP) 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.