As explained in my last post, Things I Worry About (7), the DOL’s EBSA has a number of programs that can restore benefits to plans and participants. Those include:

• Civil investigations.
• Criminal investigations.
• Informal complaint resolutions.
• Correction programs.

The issue of “missing participants” comes up in civil investigations. In those investigations the DOL examines whether a plan has former employees who left their accounts in the plan and whether the plan continues to provide the legally required disclosures and to ensure that the participants are aware of their benefits. I put “missing participants” in quotes because the definition I broader than it appears. There isn’t a legal definition, but the practical definition is that it is a former employee who left the employment of a plan sponsor, but did not take a distribution of his or her benefits. If plan communications (e.g., emails, mail, disclosures) are sent to a former employee who has benefits in the plan and it appears that the communications were received, the former employee is not “missing.” But, if the emails and mailings are kicked back as undeliverable, the participant is missing.

In my last post, I explained that, while most plan sponsors and fiduciaries might think that participants have a duty to keep the plan and the employer up to date on their contact information, the EBSA has a different point of view. Participants, including missing participants, are entitled to receive certain disclosures (for example, quarterly 401(k) statements and annual 404a-5 investment charts). If those aren’t being delivered (e.g., received by the former employee), the EBSA’s position is that fiduciaries need to take reasonable and prudent steps to find the participants and deliver the disclosures. If the EBSA investigates the plan, and if the fiduciaries have not taken reasonable and prudent steps to locate missing participants, the EBSA will assert that the plan fiduciaries (e.g., committee members) have breached their fiduciary duties. As you might imagine, that comes as a shock to committee members, and it is inevitable that they will ask why no one told them about these responsibilities.

The EBSA has provided informal guidance about issues related to missing participants—Missing Participants—Best Practices for Pension Plans. best-practices-for-pension-plans.pdf   I recommend that the guidance be reviewed at an upcoming  fiduciary meeting.

In the Best Practices, the following are listed as “warnings” of a problem 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 pension 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 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).

Unfortunately, in my experience few plan fiduciaries automatically get reports from their service providers about these “warnings.” As a result, in most cases the fiduciaries, with help from their advisers, will need to request the information from their plan recordkeepers.

Once the fiduciaries have those reports, the data should be reviewed to see if there is a problem, e.g., are any of the warnings above triggered by the report.

If so, fiduciaries should work with their advisers and providers to follow the steps in the guidance on missing participants.

While a full discussion of the best practices is beyond the scope of this article, it should come as no surprise that one of the categories is “Missing participant searches.”

Some of the suggestions in that category are to:

• Review internal records, for example, is there another address under the health and welfare records, designations of beneficiary, and so on.
• Use free online search engines, for example, social media such as Facebook and LinkedIn.
• Use a commercial locator service. There is a cost for these services; however, in my experience, recordkeepers have negotiated favorable arrangements with those services for use related to the plans they serve.

The EBSA’s guidance lists other considerations and best practices; fiduciaries should consider implementing that guidance.

By the way, if a former employee who has an account has reached his or her age for required minimum distributions, and those RMDs have not been made (because the participant is missing), it is a disqualifying defect for the plan. In other words, the IRS could assert that the plan is disqualified for tax purposes. In all likelihood, the IRS would negotiate a settlement with the payment of a penalty, and requiring that the RMDs be paid to the missing participant, but that is a painful process. Fortunately, the IRS has indicated that the failure to pay RMDs will not disqualify a plan if a reasonable effort has been made to locate the missing participant. The EBSA’s guidance should satisfy the requirement for a reasonable search.

Concluding Thoughts

Retirement plan fiduciaries should pay attention to the missing participant issue. It is one of the top investigation priorities for the EBSA and will almost certainly be a part of any investigation of an ERISA governed retirement plan.

The road to compliance is clear…review and implement the Best Practices. If a plan’s fiduciaries are not already paying attention to this issue, then they should this year.

Forewarned is forearmed.

Postscript: The EBSA recently issued Field Assistance Bulletin (FAB) 2025-1 with guidance on how accounts of missing participants—who cannot be located despite a reasonable search—of $1,000 or less can be turned over to State unclaimed property funds. The FAB specifically references the Best Practices as the way to conduct a reasonable search. Note that this is more complicated because it requires that the State fund be an “Eligible State Fund”. A discussion of those requirements is beyond the scope of this article.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Faegre Drinker.