Finding missing retirement plan participants and dealing with uncashed checks can be frustrating and time-consuming, but is a fiduciary’s responsibility under the Employee Retirement Income Security Act (ERISA). Plan processes for addressing these challenges have become a frequent target of Department of Labor (DOL) plan audits. The increased DOL oversight in conjunction with a lack of guidance have left plan fiduciaries searching for both the missing participants and for answers. The DOL recently provided some answers on what it views as appropriate procedures for retirement plans to locate missing or nonresponsive participants. The DOL released the new, missing participants guidance in three parts: (1) Missing Participants – Best Practices for Pension Plans; (2) Field Assistance Bulletin No. 2021‑01; and (3) Compliance Assistance Release No. 2021‑01.
Missing Participants – Best Practices for Pension Plans
The DOL Best Practices guidance describes a range of best practices that plan fiduciaries should consider to mitigate missing participant issues. The guidance is not legally binding on plan fiduciaries; the intent is to provide clarity and tools for plan fiduciaries. This guidance also does not provide a safe harbor, and compliance with these best practices does not guarantee that the DOL will not find issues if a plan undergoes an audit. The guidance lists four best practices and expands on each, giving examples. The best practices fall into the following categories:
- Maintaining accurate census information for the plan's participant population.
- Implementing effective communication strategies.
- Missing participant searches.
- Documenting procedures and actions.
The DOL acknowledges that not every action will be appropriate for every plan or every circumstance, and the specific steps to take will depend on facts and circumstances, including the participant demographics and characteristics. For a list of the specific examples under each best practice, see the guidance here.
In addition to best practices, the DOL also lists the following "red flags" that it commonly finds in audits, which may indicate potential problems with missing participants:
- More than a small number of missing or nonresponsive participants.
- More than a small number of terminated vested participants who have reached normal retirement age but have not started receiving their retirement benefits.
- Missing, inaccurate or incomplete contact information, census data or both (e.g., incorrect or out-of-date mail, email and other contact information, partial social security numbers, missing birthdates, missing spousal information or placeholder entries).
- Absence of sound policies and procedures for handling mail returned and marked "return to sender," "wrong address," "addressee unknown," or otherwise, and undeliverable email.
- Absence of sound policies and procedures for handling uncashed checks (as reflected for example, by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks or failure to reclaim stale uncashed check funds in distribution accounts).
Compliance Assistance Release (CAR) No. 2021-01
The purpose of the DOL’s Terminated Vested Participants Project (TVPP) is to ensure that pension plans: (1) maintain adequate census and other records necessary to identify Terminated Vested Participants (TVPs) who are owed benefits; (2) have adequate procedures for communicating to TVPs; and (3) have appropriate procedures to search for missing TVPs. The DOL released CAR No. 2021-01 to increase the consistency of DOL audit practices and to encourage voluntary compliance by plan fiduciaries.
When an investigation is opened, the DOL will request numerous documents, including: plan documents, participant census records, actuarial reports, the plan's procedures for communicating with TVPs and documents describing the plan's procedures for addressing missing TVPs.
During the course of a TVPP audit, the DOL will look for systemic issues such as:
- Errors in plan recordkeeping and administration that create risk of TVPs failing to enter pay status.
- Inadequate procedures for identifying and locating missing TVPs or their beneficiaries.
- Inadequate procedures for contacting TVPs nearing normal retirement age.
- Inadequate procedures for contacting TVPs who are not in pay status at or near the date that they must commence required minimum distributions at age 72 (RMDs).
After reviewing all information, the DOL will advise plan fiduciaries of any problems and ask the fiduciaries to take appropriate corrective action. Plan fiduciaries will be given a reasonable amount of time to respond. If the plan fiduciaries provide appropriate remedies to the identified issues, the DOL typically will issue a Voluntary Compliance letter, describing the corrective actions taken by the plan and will not cite individual fiduciaries for ERISA violations.
Like the DOL's Best Practices guidance, CAR No. 2021-01 is not legally binding, but merely informative.
Field Assistance Bulletin (FAB) 2021-01
DOL FAB 2021-01 implements a temporary enforcement policy related to the Pension Benefit Guaranty Corporation (PBGC) Missing Participants Program (the “Program”). This guidance only applies to terminating, defined contribution plans.
An existing DOL safe harbor allows fiduciaries to transfer distributions from terminating, defined contribution plans to IRAs for participants, including missing participants, who fail to make timely distribution elections. If the safe harbor is satisfied, a fiduciary is deemed to satisfy its fiduciary requirements under ERISA.
The PBGC established the Program to hold retirement benefits for missing participants and help participants find and receive their benefits. To date, the DOL safe harbor does not cover the transfer of terminating, defined contribution plan accounts to the Program. Recognizing the economic disruption caused by the COVID-19 pandemic, the DOL is facilitating use of the Program through a temporary enforcement policy.
Before plan fiduciaries can take advantage of this guidance, they must first go through prudent procedures to find missing participants. If plan fiduciaries are still unable to locate missing participants, under the temporary enforcement policy they comply with the safe harbor requirements by participating in the Program, except that the notice to participants must reflect that the transfer is being made to the PBGC, rather than to an IRA. The Program may be used for participants who fail to make timely distribution elections and for lump sum recipients who were paid by check, if the check remains uncashed after the “cash by” date prescribed on the check that is at least 45 days after the check’s issue date or, if no “cash by” date is prescribed, the check’s stale date.
Recommended Actions
Plan sponsors and fiduciaries of all retirement plans should carefully review this guidance and take the following steps:
- Take stock of the plan's current missing participant and uncashed checks procedures and assess whether they are effective.
- Review the DOL's Best Practices guidance and examples and implement those that would be helpful.
- Determine whether any of the DOL's red flags apply to the plan. If so, take corrective action.
If you would like to discuss how to improve your procedures for lost participant and uncashed checks, contact Mary Jo Larson, Brianna Richardson or any other member of Warner’s Employee Benefits/Executive Compensation Practice Group.
