Full Version: Forfeiture of account balance of missing participant
What is the DOL's position, now, with a Plan provision that permits forfeiture of an account when the terminated participant cannot be located? Does FAB 2004-02 (detailing how to locate missing participants) effectively eliminate forfeiture as a proper procedure?
Does anyone have any comments regarding my thoughts on my own question? --
The DOL stated, long ago (1994), that even though IRS regulations permit forfeiture (or escheat) of an account because a participant cannot be found, that does not mean that the provision is free and clear of a claim that the provision--in that case escheat--is preempted. And the DOL then went on to say that ERISA preempts a state requirement mandating escheat of pension benefits (notwithstanding the IRS reg which permits it).
I think the same argument could be made regarding forfeiture of the account of a missing participant: in spite of the IRS reg. permitting that kind of forfeiture, such an action might run afoul of fiduciary obligations, in which case such a forfeiture would not be permitted. The DOL did not mention forfeiture as a permissible act to take when a participant cannot be located, implying that forfeiture might be a breach of fiduciary duty. (A similar example of this type of conflict is the IRS rule permitting forfeiture of an account upon death--except that the QPSA rules trump that rule and require payment of at least a portion of the benefit to the spouse after death.)
Therefore, I--for one--am very wary of ever forfeiting the account of a missing participant. Does anyone else have that concern at all, or am I just howling at the moon--again!
The DOL stated, long ago (1994), that even though IRS regulations permit forfeiture (or escheat) of an account because a participant cannot be found, that does not mean that the provision is free and clear of a claim that the provision--in that case escheat--is preempted. And the DOL then went on to say that ERISA preempts a state requirement mandating escheat of pension benefits (notwithstanding the IRS reg which permits it).
I think the same argument could be made regarding forfeiture of the account of a missing participant: in spite of the IRS reg. permitting that kind of forfeiture, such an action might run afoul of fiduciary obligations, in which case such a forfeiture would not be permitted. The DOL did not mention forfeiture as a permissible act to take when a participant cannot be located, implying that forfeiture might be a breach of fiduciary duty. (A similar example of this type of conflict is the IRS rule permitting forfeiture of an account upon death--except that the QPSA rules trump that rule and require payment of at least a portion of the benefit to the spouse after death.)
Therefore, I--for one--am very wary of ever forfeiting the account of a missing participant. Does anyone else have that concern at all, or am I just howling at the moon--again!
QUOTE (Sieve @ Jul 9 2008, 07:00 PM) 
Does anyone have any comments regarding my thoughts on my own question? --
The DOL stated, long ago (1994), that even though IRS regulations permit forfeiture (or escheat) of an account because a participant cannot be found, that does not mean that the provision is free and clear of a claim that the provision--in that case escheat--is preempted. And the DOL then went on to say that ERISA preempts a state requirement mandating escheat of pension benefits (notwithstanding the IRS reg which permits it).
I think the same argument could be made regarding forfeiture of the account of a missing participant: in spite of the IRS reg. permitting that kind of forfeiture, such an action might run afoul of fiduciary obligations, in which case such a forfeiture would not be permitted. The DOL did not mention forfeiture as a permissible act to take when a participant cannot be located, implying that forfeiture might be a breach of fiduciary duty. (A similar example of this type of conflict is the IRS rule permitting forfeiture of an account upon death--except that the QPSA rules trump that rule and require payment of at least a portion of the benefit to the spouse after death.)
Therefore, I--for one--am very wary of ever forfeiting the account of a missing participant. Does anyone else have that concern at all, or am I just howling at the moon--again!
The DOL stated, long ago (1994), that even though IRS regulations permit forfeiture (or escheat) of an account because a participant cannot be found, that does not mean that the provision is free and clear of a claim that the provision--in that case escheat--is preempted. And the DOL then went on to say that ERISA preempts a state requirement mandating escheat of pension benefits (notwithstanding the IRS reg which permits it).
I think the same argument could be made regarding forfeiture of the account of a missing participant: in spite of the IRS reg. permitting that kind of forfeiture, such an action might run afoul of fiduciary obligations, in which case such a forfeiture would not be permitted. The DOL did not mention forfeiture as a permissible act to take when a participant cannot be located, implying that forfeiture might be a breach of fiduciary duty. (A similar example of this type of conflict is the IRS rule permitting forfeiture of an account upon death--except that the QPSA rules trump that rule and require payment of at least a portion of the benefit to the spouse after death.)
Therefore, I--for one--am very wary of ever forfeiting the account of a missing participant. Does anyone else have that concern at all, or am I just howling at the moon--again!
Under IRS reg 1.411(a)-4(a)(6) a plan can provide that the benefit of a missing participant is forfeited when it is payable subject to reinstatment of the benefit if a claim for payment is made by the participant or a beneficiary at a later date. I dont see how this provision violates ERISA non forfeiture rules because the participant or his heirs can always claim the benefit.
In light of the DOLs 'missing person guidance' I personally would not be wild about forfeiting such balances (though it still is in the regs that it is possible) conflict between DOL and IRS - who wins?
I am assuming you are talking about a 'small' balance. Has your document adopted the provision to rollover the amounts to an IRA if you get a 'no response' from the individual? I believe there are places willing to set up IRA for such people.
I am assuming you are talking about a 'small' balance. Has your document adopted the provision to rollover the amounts to an IRA if you get a 'no response' from the individual? I believe there are places willing to set up IRA for such people.
Most documents I work with have reduced the involuntary distribution ceiling (or is it floor?) to $1,000 in order not to have to deal with the administrative hassle of opening an IRA but I've not seen any documents which provide for opening an IRA for non-responders. MJB: In part, I hesitate to forfeit precisely because of the need for the employer to either fork over the money or take amounts from forfeitures to reinstate the account at some later date, and the uncertainty of determining the value of the account (which has been dispersed elsewhere for a number of years). I find it curious that the DOL did not mention that as a possibility in its FAB.
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