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Practice Tip: Warning Signs Your Plan May Have a Missing Participants Problem

When participants in a qualified retirement plan terminate employment with the plan sponsor, it can be challenging to ensure that their contact information in the plan’s records is kept up to date and accurate. Inaccurate contact information is problematic for a variety of reasons, including potentially causing an operational failure when such participants do not receive distribution of their plan benefits by their required distribution date, as well as increasing the possibility of fraud when a participant’s information is sent to the wrong address. In addition, a plan sponsor’s failure to make reasonable efforts to locate missing participants would be a breach of their fiduciary duties of loyalty and prudence. Often, the first indication that a participant may be missing is that mail sent to their last known address is returned undeliverable or their distribution checks are returned or remain uncashed. In addition, a plan sponsor should check to see… Continue Reading

IRS Memo Addresses Required Minimum Distributions to Missing Participants

The IRS recently released a memo instructing its Employee Plans examiners not to challenge a qualified retirement plan’s compliance with the required minimum distribution (“RMD”) rules under Code Section 401(a)(9), in situations where the plan is unable to make an RMD to a missing participant after completing the following steps: (i) searching plan, sponsor, and publicly-available records for alternative contact information; (ii) using a commercial locator service, credit reporting agency, or proprietary Internet search tool; and (iii) attempting contact via certified mail to the last known mailing address and through “appropriate means” for any other addresses or contact information (e.g., email addresses or telephone numbers). If a plan has not taken all of the foregoing steps, an examiner may challenge the qualified status of that plan if it fails to make timely RMDs to lost participants. Plan administrators are thus advised to complete those steps and document the results for… Continue Reading

PBGC Missing Participant Program to Include 401(k) Plans and Certain Other Plans That Terminate after 2017

The PBGC issued a proposed rule that would expand its existing missing participants program to cover terminated defined contribution plans, such as 401(k) and profit-sharing plans, as well as certain other plans not currently covered under the program, that voluntarily elect to participate. Under the program, for a low one-time fee, and following a diligent search, the terminating plan may transfer the account balances or accrued benefits of all missing participants to the PBGC. The PBGC will then maintain a centralized, online searchable directory of the missing participants and periodically search for the missing participants. In the proposed rule, the PBGC also modifies the criteria for a participant to be considered ”missing” and provides specific diligent search rules for plans to attempt to locate missing participants. Read the proposed rule.

Refresher on Locating Missing Retirement Plan Participants and Beneficiaries

Retirement plan sponsors often need to contact former employees and other plan participants and beneficiaries in order to begin plan distributions or upon the plan’s termination. Oftentimes, the plan’s contact information for such persons is outdated. Prior to August 2012, plans could use the IRS’s letter forwarding service to locate these missing participants and beneficiaries. Since the discontinuance of that service, plan sponsors now must use a variety of other methods to try to locate these persons, including commercial locator services, credit reporting agencies, and Internet search tools. Additionally, DOL Field Assistance Bulletin 2014-01 lays out the required steps the plan sponsor of a terminated defined contribution plan must take to locate any missing participants and beneficiaries, which include sending a notice using certified mail, checking the employer’s records for more current information, attempting to contact a missing participant’s designated beneficiary, and using free Internet search tools. Additional information on… Continue Reading

December 2019
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