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MPP & Missing or Nonresponsive Participant


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The default benefit under an money purchase plan is a joint and survivor annuity.  As a defined contribution plan, it cannot pay this benefit straight from the account; it must acquire an annuity from an insurance company.  What insurance company will sell an annuity contract to a plan trustee without a participant signature on the contract application?  MetLife already has its hands full trying to find participants on contracts it sold to willing buyers.  An MPP with a retirement once ever so many years cannot buy a group annuity for just this.  With investments all in mutual funds for active participants, there is no insurance company involved in the administration or normal investment.  Does anyone know of an insurance company taking this business?

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That is a huge challenge, and near impossible if the employer (or participant) is in certain states (NY in particular) - which we've encountered trying to secure contracts on terminating DBPs with small liabilities that don't meet underwriting minimums. The plan buys the contract right, then distributes to participant? Also, I assume the person has reached NRA - so check the document and also determine whether person is missing or unresponsive. Are mailings being received/acknowledged or returned undeliverable? Have further diligent searches been performed? If missing, document may allow you to forfeit. If unresponsive, there may be communications sent that would elicit a response, such as "if you do not make an election then your account balance must be used to purchase an annuity for you from an insurance company which will then pay you a monthly benefit based on its current interest, mortality and fee structure, which will be locked in for the rest of your (and your spouse's) life". Telling them you're giving their money to an insurance company should generate a response. It has been a few years since I talked with them, because unfortunately they do not write contracts in NY, but Pacific Life was a company that seemed to indicate they would not shy away from small contracts. Good luck.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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I didn't see anything in the question suggesting that the issue involved a de minimis contract problem, but that the participant would not sign the application. Why?

Participant can't be located or is otherwise non-responsive?

Participant does not want a J&S annuity (marital problems?) and spouse won't sign off an a non J&S equivalent?

Are you trying to purchase the annuity without any informational cooperation (such as proof of age by participant and spouse) by participant?

Something else?

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On 6/26/2019 at 3:32 PM, FormsRstillmylife said:

The default benefit under an money purchase plan is a joint and survivor annuity.  As a defined contribution plan, it cannot pay this benefit straight from the account; it must acquire an annuity from an insurance company.  What insurance company will sell an annuity contract to a plan trustee without a participant signature on the contract application?  MetLife already has its hands full trying to find participants on contracts it sold to willing buyers.  An MPP with a retirement once ever so many years cannot buy a group annuity for just this.  With investments all in mutual funds for active participants, there is no insurance company involved in the administration or normal investment.  Does anyone know of an insurance company taking this business?

Are you terminating or is this just because the participant is 65 or 70.5?

Because this can just be a lost participant, can't it?  Once you do a good faith search, you are not in trouble for failing to pay benefits or make RMDs.  Wouldn't that work?

Rev Rul 2018-52, 6.02(5)(d):

Quote

(d) Locating lost participants.

(i) Reasonable actions must be taken to find all current and former participants and beneficiaries to whom additional benefits are due, but who have not been located after a mailing to the last known address. In general, such actions include, but are not limited to, a mailing to the individual’s last known address using certified mail, and, if that is unsuccessful, an additional search method, such as the use of a commercial locator service, a credit reporting agency, or Internet search tools. Depending on the facts and circumstances, the use of more than one of these additional search methods may be appropriate. A Plan Sponsor will not be considered to have failed to correct a failure due to the inability to locate an individual if reasonable actions to locate the individual have been undertaken in accordance with this paragraph; provided that, if the individual is later located, the additional benefits are provided to the individual at that time.

Just do your search and if you do several good faith attempts and cannot find the participant, they are lost.  EPCRS says you are not at fault if the participant is lost, so long as you pay the benefits when they are rediscovered.  Consider keeping a list of lost participants and retrying the search every year or two.

Maybe I am missing some detail here.  If you're trying to terminate, then you have a different problem.

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59 minutes ago, loserson said:

Rev Rul 2018-52, 6.02(5)(d):

Now Rev Proc 2019-19, 6.02(5)(d) :)

1 hour ago, loserson said:

Just do your search and if you do several good faith attempts and cannot find the participant, they are lost.  EPCRS says you are not at fault if the participant is lost, so long as you pay the benefits when they are rediscovered.  Consider keeping a list of lost participants and retrying the search every year or two.

Maybe I am missing some detail here.  If you're trying to terminate, then you have a different problem.

DOL is being much more aggressive.  While we don't have DOL guidance for ongoing plans, their actions indicate that they are not satisfied with the "search every couple years" approach.  IRS/DOL/PBGC are supposed to try to get on the same page this year, but with the new fiduciary rule, electronic notice and disclosure regs, and all the (possible) DOL related sections of SECURE/RESA, I'm not sure we will see anything for a while. 

 

 

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In some cases I am dealing with a participant that is cashing the minimum required distribution check, but the participant should have been paid through a J&S annuity under the terms of the money purchase plan.  The participant is 80, not 65 or 70.  His spouse has a right to a 50% survivor annuity.  Where do you find an insurance company that will let the trustee buy an immediate J&S annuity without the participant signing off on the forms, even at 70? 

I understand the search requirements; we have dealt with DOL audits of clients.  The question is what do you do when you have someone to pay, but the participant will not sign the forms or you locate the person when he is 85?  Money purchase plan is to pay through an annuity, unless the participant and spouse consent to installments.

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Thanks, I had forgotten that they just updated EPCRS again in 2019.

My spiral-bound EPCRS copy is now like 4 rev procs out of date (counting the partial amendments in 2015 or 2016).

We have definitely seen lots of DOL enforcement of missing participants, but what is to be done if you tried hard, paid a formal search firm or two, and add those people to your re-try list every year?  I have told clients to change their procedures to capture addresses before people go missing, but other than increasing search frequency and search firm spend (which I agree is probably what DOL wants), at some point you just have to shrug, don't you?

There are enough noises that I think within the next decade they will have some system or authority that either lists all the orphaned account balances or that actually holds them for wayward participants (like PBGC).  So my personal opinion, which I do not give as advice, is that you just need to tread water and show you are really, really, trying until the law changes.  Because the way it is now is just untenable and the product of nobody realizing how big a deal this is and how avoidable it ought to be.

I know that practitioners have been telling PBGC they want a program to take missing participant balances for DC plans.  So maybe that will be the result.  Or maybe IRS/SSA will go back to telling us where these people are.  The vast majority of missing participants are eventually going to either file tax returns, receive tax statements, collect Social Security, or receive Medicare, so the feds already know where almost all our missing participants are, especially the ones that are age 62 or 65.

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https://www.pbgc.gov/prac/missing-p-defined-contribution

P.S. - this is only for terminated plans at this time. But there are things in the works to extend this to active plans, I recall seeing something on it, but didn't investigate further yet...

P.S. - here's what I was remembering...https://www.asppa.org/news/browse-topics/what’s-plan-sponsor-do-about-missing-participants

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