What Employers Can Do About Missing 401(K) Plan Participants

• Define a “missing participant”.
• Know the steps to locating a missing participant.
• Learn what to do to prevent a missing participant in the future.

Employers that sponsor 401(k) plans often lose touch with participants who leave their organizations. If this sounds familiar, there are some steps you can take to locate these individuals.

When employees leave their jobs, financial advisors typically encourage them to roll over their 401(k) plans into a new employer’s plan or perhaps an IRA. Many people follow this advice, but not everyone.

As you may be able to attest, many employers that sponsor 401(k)s or other qualified plans end up with account holders who are former employees with out-of-date contact information. In benefits parlance, these individuals are “missing participants.”

The situation can create administrative hassles for you at first and, later, turn into a major problem when the accounts in question must start making distributions. Here are some best practices to consider when you find yourself with a missing participant.

Getting started

When a participant is unresponsive or you reasonably believe your contact information is inaccurate, first consider taking four basic steps:

1. Use certified mail to reach out to the person or, if more cost-effective, a private delivery service with similar tracking features,
2. Review your employment records and all your benefits 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 tools such as Internet search engines, public record databases, and social media accounts.

You can alleviate privacy concerns by reaching out to colleagues, and unions, or registering the name in pension registries. According to U.S. Department of Labor guidance, if your retirement plan fiduciary requests, the missing participant's employer or beneficiary can assist in contacting them.

Escalating your efforts

If initial search steps are unsuccessful and the account balance is large enough to justify the expense, paying for a professional search may be appropriate. This could mean using fee-based internet search engines, commercial locator services, credit-reporting agencies, information brokers, investigation databases, and other similar premium services.

You might be able to charge the fee against the account if it’s reasonable and the allocation method is consistent with your plan’s terms and the Employee Retirement Income Security Act.

Giving up

Some plan documents describe how to handle account balances of missing participants when search efforts fail. Others may authorize administrative committees to adopt policies for this situation. Following written policies and procedures for handling missing participants — and documenting actions taken — helps ensure consistency and lowers the risk of legal liability.

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. Some plans provide that after a reasonable search over a set period of time (generally 3-5 years) proves fruitless, the balance due to the missing participant be turned over to the State escheat fund.Under IRS regulations, such an allocation may be permissible forfeiture as long as the plan is obligated to restore the missing individual’s account balance if the person is eventually found.

Preventing the issue

Perhaps obviously, the best practice is establishing strong administrative procedures that minimize the likelihood of missing participants. These include:

• Proactively maintaining an accurate plan census,
• Periodically prompting participants and beneficiaries to reconfirm their contact info, and
• Regularly auditing census data, paying special attention to contact info in business transactions or when recordkeepers change.

Changing how plan communications are written and designed can increase the chances that participants will recognize and engage with them.

Addressing the challenges

Sponsoring a 401(k) plan can help attract strong job candidates, retain employees, and boost morale. But plan administration has its challenges — and one of them is missing participants. Work with your benefits advisors to address the matter. Meanwhile, we can help you assess the costs and financial impact of your plan.

If you have questions or need assistance, schedule a consultation with a Fiducial advisor at https://fiducial.com/consultations.

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