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Practice Tip – Missing Participants Remain a Significant Concern for Retirement Plan Sponsors

When participants in qualified retirement plans are no longer current employees of the plan sponsor, it can be challenging to ensure that the contact information in the plan’s records is up to date and accurate. However, inaccurate contact information in the plan’s records is problematic for a variety of reasons, including causing operational failures when participants do not receive distribution of benefits by the plan’s required distribution date and increasing the possibility of fraud when a participant’s information is sent to the wrong address. Plan administrators should review their procedures for locating missing participants and ensure that they are (1) consistent with available guidance from the IRS and the DOL, (2) appropriate for the plan and its participant population, and (3) being followed consistently by the plan administrator or its delegate. Plan administrators should also document any steps undertaken to locate missing participants. The plan’s procedures should also address how… Continue Reading

PBGC Expands Missing Participants Program to Terminated Defined Contribution Plans

The PBGC issued a final rule on December 22, 2017, that expands the missing participants program from covering only terminated PBGC-insured, single-employer defined benefit plans to also covering defined contribution plans (“DC Plans”), such as 401(k) plans, PBGC-insured multiemployer plans, and non-PBGC-insured defined benefit plans sponsored by professional service organizations that terminate on or after January 1, 2018. Participation will be voluntary for DC Plans and professional service organization plans, and terminating DC Plans will have the option of transferring all missing participants’ benefits to the PBGC in lieu of establishing an IRA. There would be a one-time fee upon the transfer of assets to the PBGC, and thereafter participant accounts would not be reduced by ongoing maintenance fees. After a participant is located, the PBGC would pay his or her initial account balance with interest to the participant when located. View the PBGC’s Missing Participants Program webpage. View the… Continue Reading

Missing or Unresponsive Participants and Required Distributions from Qualified Retirement Plans

It is often difficult for retirement plans to maintain current addresses for terminated participants. If distributions are not made (or are not permitted) at the time of a participant’s employment termination, the plan is required to make sure distributions are taken or begin either at the plan’s normal retirement date or when the participant reaches age 70 ½, depending on the plan’s terms. If the plan does not comply with the plan’s distribution requirements, the plan risks disqualification. When discovered, on audit or otherwise, the plan must correct the noncompliance which often involves paying fees or penalties to avoid plan disqualification. To avoid these problems, employers should take the following steps: Examine your plan to determine when distributions are required. Many plans require the participant to file a claim to begin their benefits and do not require distributions to begin at normal retirement date. In those circumstances, distributions must begin… Continue Reading

October 2019
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