DOL Issues Missing Participant Guidance

The DOL has issued more guidance on missing participants, including a temporary enforcement policy on use of the PBGC’s expanded Missing Participants Program (PBGC Program) and informal guidance on best practices for dealing with missing and unresponsive participants. DOL regulations currently allow fiduciaries of terminating plans to meet their fiduciary obligations with respect to missing participants’ benefits by rolling distributions over to an IRA. In 2014, the DOL reiterated its preference for IRA distributions, but added that fiduciaries could also consider bank account and unclaimed property fund options (see our Checkpoint article). (Under the regulations, those options are available only to qualified termination administrators of abandoned plans.) The DOL promised to revisit its guidance after the PBGC issued regulations on the expansion of the PBGC Program to include terminated defined contribution plans (which Congress authorized in 2006 but had not yet occurred at the time of the 2014 guidance). Field Assistance Bulletin 2021-01 (FAB) updates the DOL’s 2014 guidance to take into account the PBGC Program’s expansion (implemented in 2018; see our Checkpoint article), and allow plan fiduciaries of terminating defined contribution plans and administrators of abandoned plans to transfer the account balances of missing participants and beneficiaries to the PBGC without challenge by the DOL if certain conditions are met.

Highlights of the FAB include:

• Notice. A plan fiduciary who participates in the PBGC Program must otherwise comply with the regulations, except that the required notice to participants and beneficiaries must be modified to reflect transfer to the PBGC and include the PBGC’s website and customer contact phone number.
• Uncashed Checks. Account balances can be transferred to the PBGC if a participant or beneficiary elected a lump sum distribution of the entire account but didn’t cash the check by its “cash-by” date (at least 45 days following its issuance date) or, if the check has no cash-by date, by the check’s stale date.
• PBGC Fee. PBGC charges a flat fee for certain accounts transferred under the Program. The fee may be paid from the transferred account unless that is prohibited by the plan. Provisions in abandoned plans that require the expense to be paid by an unavailable employer, however, may be disregarded.
• Notifying Plans. The DOL encourages fiduciaries to notify the PBGC about the disposition of account balances of missing participants whose balances are not transferred to the PBGC Program.
• Other Conditions. The FAB applies only to fiduciaries that act in accordance with a good faith, reasonable interpretation of ERISA § 404 regarding matters not specifically addressed in the policy.
• Violations Not Covered. The FAB does not preclude the DOL from pursuing violations for failures to diligently search for participants and beneficiaries prior to the transfer of account balances to the PBGC, or for a failure to maintain plan and employer records.

Contemporaneously with its temporary enforcement policy, the DOL issued less formal guidance describing a range of best practices that fiduciaries can follow to alleviate missing participant issues and ensure that plan participants receive their benefits. After outlining the “red flags” of a missing participant problem, the guidance lists best practices in four broad categories: (i) aids to maintaining accurate plan census information; (ii) communication strategies; (iii) missing participant search methods; and (iv) documentation. Not every practice will be appropriate for each plan, and fiduciaries should keep in mind both the size of the participant’s benefit and costs to the plan when deciding what to do.

EBIA Comment: While the FAB’s enforcement relief is described as temporary, it has no fixed end date and is likely a precursor for permanent guidance incorporating the PBGC Program into the DOL regulations. While fiduciaries of terminating plans now have another distribution option for missing participants, they must still be able to demonstrate that they diligently searched for those participants. To avoid violations of that obligation, fiduciaries should consider studying the best practices guidance and shore up any identified gaps in their processes and procedures. For more information, see EBIA’s 401(k) Plans manual at Sections XII.J (“Missing or Unresponsive Participants”) and XXXIII.H.4 (“Distributions on Plan Termination: The Problem of Missing and Unresponsive Participants”).

Contributing Editors: EBIA Staff.