Employees in industries worldwide work hard and join pension and retirement savings plans to secure future benefits for themselves and their families. However, one lingering issue of these pension and retirement savings plans is that when a participant is entitled to a pension or retirement benefit, plans sometimes have trouble locating participants. Due to this, participants often do not apply for their retirement benefits because they simply do not know their pension is available or otherwise ignore plan communications indicating as such. The Employee Benefits Security Administration (EBSA) has issued guidance to help retirement fiduciaries meet their obligations under Title I of the Employee Retirement Income Security Act (ERISA) to locate and distribute retirement benefits to missing or nonresponsive participants.
Latest Guidance on Missing Participants
On January 12, 2021, the EBSA released guidance in three forms:
- Best Practices for Pension Plans describes a range of policies and procedures fiduciaries of retirement plans, such as 401(k) plans, should consider taking to help reduce missing participant issues and ensure those plan participants receive promised benefits when they reach retirement age.
- Compliance Assistance Release 2021-01 outlines the general investigative approach to guide all EBSA’s Regional Offices under the Terminated Vested Participants Project and facilitate voluntary compliance efforts by plan fiduciaries.
- Field Assistance Bulletin 2021-01 authorizes, as a matter of enforcement policy, plan fiduciaries of terminating defined contribution plans use of the PBGC missing participant program for missing or nonresponsive participant’s account balances.
Best Practices for Pension Plans
The Best Practices document issues guidance based on general ERISA fiduciary principles that are equally applicable to defined benefit plans and defined contribution plans. The guidance focuses on red flags and best practices.
One or more of the following red flags indicate a missing participants problem:
- More than a small number of missing or nonresponsive participants.
- More than a small number of terminated vested participants have reached the average retirement age but have not started receiving their pension benefits.
- Missing, inaccurate, or incomplete contact information, census data, or both.
- Absence of sound policies and procedures for handling mail returned marked “return to sender,” “wrong address,” “addressee unknown,” or otherwise, and undeliverable email.
- Absence of sound policies and procedures for handling uncashed checks.
The best practices prescribed by EBSA are generally grouped into the following:
- Maintain accurate and up-to-date census information.
- Implement effective participant communication strategies.
- Search for missing participant contact information using all plan and employer records.
- Document policies and procedures related to missing participants.
Here are some specific measures that plans can take.
- For maintaining accurate census information:
- Contacting participants, both current and retired, and beneficiaries periodically to confirm or update their contact information.
- Including contact information change requests in plan communications along with a reminder to advise the plan of any changes in contact information.
- Providing prompts for participants and beneficiaries to confirm contact information upon login to online platforms.
For implementing effective communication strategies:
- Use plan language and offer non-English assistance when and where appropriate.
- Provide multiple channels to contact the plan or plan sponsor through website and phone numbers.
- Build steps into employer and plan onboarding and enrollment to confirm or update contact information while advising participants of the importance of ensuring the plan has accurate contact information.
For missing participant searches:
- Use a commercial locator service, a credit-reporting agency, or a proprietary internet search tool to locate individuals.
- Use resources with the related plan and employer records to find contact information; typically, the employer has the most current payroll records.
- Use death search services if participants are nonresponsive.
For documenting policies and procedures:
- Make sure the policies are clear and consistent and in writing.
- If a third-party administrator or recordkeeper is involved, ensure the agreed-upon services establish procedures for obtaining up-to-date contact information.
Compliance Assistance Release 2021-01
Additionally, the EBSA issued Compliance Assistance Release 2021-01. This release outlines the general investigative approach that will guide the EBSA’s regional offices under the Terminated Vested Participants Project for defined benefit plans and facilitate voluntary compliance efforts by plan fiduciaries. The guidance reveals the errors EBSA staff look for and the information EBSA requests from plan sponsors.
Field Assistance Bulletin 2021-01
Lastly, the EBSA issued Field Assistance Bulletin 2021-01, which authorizes, as a matter of enforcement policy, plan fiduciaries of terminating DC plans to use the Pension Benefit Guaranty Corporation (PBGC) missing participant program for missing or nonresponsive participants’ account balances. The guidance describes which participant accounts may be transferred to PBGC and the rules for participant notices.
The EBSA notes in the Field Assistance Bulletin that PBGC cites multiple benefits of the program, including:
- Benefits of any size can be transferred to PBGC.
- Periodic active searches by PBGC increase the likelihood of connecting missing participants with their benefits.
- Ongoing maintenance fees or distribution charges do not diminish benefits..
- Transferred amounts grow with interest (at the applicable federal mid-term rate).Lifetime income options are available for balance transfers over $5,000.
The DOL has long been concerned with the issues surrounding missing participants and beneficiaries. Plan administrators should review plan data and procedures and discuss with their advisors whether enhancement to their existing systems and practices is warranted.
Please do not hesitate to contact any of us at Calibre CPA Group for assistance or consultation.
Ajai K. Murali | Audit Manager