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What Should We Do When Our 401(k) Plan Must Make a Distribution to Someone We Cannot Locate?



QUESTION: Each year, when our 401(k) plan makes required minimum distributions, we discover that the addresses on file for some distributees are no longer valid. We sometimes have similar problems locating beneficiaries when a participant dies. What procedures should we follow when our plan must make distributions to individuals we cannot locate? And what can we do to minimize this problem?

ANSWER: The DOL and IRS have both offered guidance about dealing with participants and beneficiaries who are unresponsive or cannot be located—i.e., “missing participants.” However, this guidance is not all directly on point or highly detailed: The DOL’s most detailed guidance relates to terminating plans (see our Checkpoint article), and the IRS’s guidance relates to audits (see our Checkpoint article) and the correction of distribution errors (see our Checkpoint article). The DOL has also provided a list of best practices that ongoing plans can employ to minimize and mitigate the problem of missing participants, but those practices are only examples of steps plan fiduciaries should consider in light of the plan’s participant population, the size of the participant’s benefit, and the cost (see our Checkpoint article). Although this guidance does not offer a complete compliance roadmap, collectively it suggests the following:

  • Initial Search Steps. When a participant or beneficiary is unresponsive or you reasonably believe your contact information is inaccurate, consider taking these four steps: (1) use certified mail (or a private delivery service with similar tracking features if less expensive); (2) check employer records and all of the employer’s plans for up-to-date information; (3) attempt to identify and contact the individual’s designated beneficiaries under those plans for information; and (4) use free electronic search tools such as internet search engines, public record databases, and social media. (These steps are required, in no particular order, for terminating plans.) The DOL’s best practices guidance includes other suggestions, such as reaching out to a participant’s colleagues or union and registering the individual on public or private pension registries. The DOL suggests that privacy concerns can be alleviated if the retirement plan fiduciary asks the employer, other plan fiduciary, or beneficiary to have the missing individual contact the retirement plan. Nevertheless, employer-sponsored group health plans should not use or disclose individually identifiable information unless the use or disclosure complies with HIPAA’s privacy rules.
  • Additional Search Steps for Larger Account Balances. If the initial search steps are unsuccessful, searches that charge a fee may be appropriate when the account balance is large enough to justify the expense. (The fee may be charged against the account if reasonable and if the allocation method is consistent with the plan’s terms and ERISA.) Additional steps could include internet search tools, commercial locator services, credit-reporting agencies, information brokers, investigation databases, and similar services charging a fee.
  • When Search Efforts Fail. Some plan documents describe how to handle account balances when search efforts fail; others may authorize administrative committees to adopt policies for these situations. Following written policies and procedures for handling missing participants, and documenting actions taken, should help ensure consistency. Some plan provisions or policies direct fiduciaries to allocate the funds in the account among the accounts of the remaining participants, subject to restoration if the individual should reappear. Under IRS regulations, such an allocation is not an impermissible forfeiture so long as the plan is obligated to restore the missing individual’s account balance.
  • Ongoing Practices. To minimize future problems with missing participants, the DOL’s best practices guidance encourages plans to be proactive in maintaining accurate census information. Periodically prompting participants and beneficiaries to reconfirm their contact information, regularly auditing census information, paying special attention to contact information in business transactions or when recordkeepers change, and other listed practices can help avoid missing participant searches later. Even changing the way communications are written (and addressed, if mailed) can make it more likely participants will recognize the importance of a communication and engage with it.

For more information, see EBIA’s 401(k) Plans manual at Sections XII.J (“Missing or Unresponsive Participants”), XIV.H (“Automatic Rollover of Mandatory Distributions”), and XXXV.C.5 (“Correction Principle #5: Exceptions to Full Correction”).

Contributing Editors: EBIA Staff.

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