Tips on How to Find Missing Participants

Failure to find missing participants could disqualify a retirement plan under the tax code and lead to breaches of the ERISA fiduciary duty.

Since 2015, the Department of Labor (DOL) has focused on plan sponsors’ duty under the Employee Retirement Income Security Act (ERISA) to find missing participants, according to a blog on Morgan Lewis’ website penned by a trio of attorneys at the firm.

The DOL says that under ERISA Section 404(a)(1), “Consistent with their obligations of prudence and loyalty, plan fiduciaries must make reasonable efforts to locate missing participants or beneficiaries, so that they can implement directions on plan distributions from the participants or beneficiaries.”

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Another blog, on the website of The Rosenbaum Law Firm, says sponsors tend to ignore the problem of missing participants. The signs of a missing participant include returned mail, returned emails, no recent activity on the Internet or phone, or an outstanding distribution check that has not been cashed.

Rosenbaum attorneys say that missing participants could pose a fiduciary risk to sponsors: “Missing participants don’t get the required notices on major changes to the plan, including an updated summary plan description, plan statements, blackout notices, and any changes to plan investments—which is a liability risk. Missing participants are viewed as a more critical problem when they are at or near a distributable event, [such as] a required minimum distribution.”

The Rosenbaum attorneys say that when a distribution is due, the IRS wants to collect taxes, and the DOL wants to ensure that participants receive the money due to them. Failure to take care of this could lead to an audit.

While finding missing participants can be expensive, if they remain in a small plan, they could push the headcount above 100, in which case the plan would need to go through an audit, which typically costs more than $10,000. Another real problem, the attorneys add, is that neither the DOL or the IRS have offered much guidance on how to find missing participants or how to deal with uncashed checks.

The DOL says sponsors should send notices via certified mail, check their records, send an inquiry to the beneficiary of the missing participant and use free electronic search tools as a minimum.

Beyond that, the Rosenberg Law Firm blog says, sponsors can use commercial locator services, credit reporting agencies and Internet search tools. And, like all of their activity with their plans, sponsors need to document their actions.

Norma Sharara, a partner with Mercer, in a podcast, “Missing Participants—Risks and Remedies,” said that if there are missing participants that plan sponsors have not made a genuine effort to find, “the entire plan could be disqualified under the tax code and plan fiduciaries may be found to have breached their ERISA duties.”

Shahara recommended several potential actions that the blogs did not mention, including searching for updated contact information across all of the company’s records, not just the retirement plan records, such as health care and personnel files. She also said that if the benefit is large, sponsors should use more than one method.