Lost participant in a terminated plan with account greater than $5000

[Guest mparker2028]

Client has terminated a Profit Sharing Plan which was merged with a previous Money Purchase Pension Plan.

Participant with a $56000 account balance has been missing since 1995. We have done several several including sending mail to last know addresses, which all come back undeliverable.

What can we do?

[mbozek]

Have you tried to locate him through the IRS or a locater service?

[Guest Pensions in Paradise]

$56,000, and the participant is lost? Seems like a lot of money for a participant to forget about.

Anyway, assuming you've already tried a commercial locater service, I would say the plan sponsor should hire a private investigator to locate the participant.

[mbozek]

After an absence of 10 yrs you are ignoring the obvious: the participant may have died without any heirs or the heirs do not know that he/she had a 56k account balance. This is why participants should transfer their benefits after termination to an IRA.

[Blinky the 3-eyed Fish]

While you may take PIP's advice, you certainly are not required to go that far. Because the plan is terminating, if you can't locate him after a locator service is used, simply open up an IRA for him and roll over the money there.

[david rigby]

If you have not already done so, try the Search feature. I suggest using search terms such as "lost" or "missing participant".

[mbozek]

If you take Blinky's advice the money will escheat to the state after 3-5 yrs under abandoned property laws (56k is a lot to give to the govt). If part. cant be located after a dilligent serach (IRS, locater svc) you can forfeit the account and distribute the funds to the remaining participants. If particpant shows up at a later date there will be no plan /fiducary to make a claim against because there is no plan and Plan admin made dilligent effort to locate participant before forfeiting benefits.

[Blinky the 3-eyed Fish]

MB, I know you always come up with this same fofeiture advice, but I fail to follow the logic of why anyone would do that. You think it is better to forfeit the balance to other participants instead of an auto rollover? Even if it does go to the state, there is the possibility the person or beneficiary might recover it someday. Forfeiting the balance brings up the possibility the plan adminstrator may have defend a lawsuit should the participant/beneficiaries come calling, whether there is merit or not.

[mbozek]

I prefer that participants benefit from forfeitures because under ERISA retirement plans are operated for the exclusive purpose of providing benefits to participants, not state govt. How would any one would ever find the state where the money is being kept is beyond me. My experience has been that missing participants rarely return for their money (less than 1 in 100) especially after 10 years. Missing participants lose track of their benefits and die without recovering the funds. I dont know of the basis for a participant to bring a lawsuit if there is no plan to make a claim against. (Before suing a participant would have to make a claim for benefits.) In otherwords you cant file a claim for benefits as a participant if there is no plan. Also participants have a duty to keep a plan informed of their current address and cant hold the plan liabile if they dont provide a forwarding address.

56k is a lot of money to give away to a state govt because of the remote risk that a missing participant (who cant be located after a dilligent serch) may appear at some unknown future date, more than 10 yrs after he terminated, to claim benefits from a non existant plan.

[Guest beppie_stark]

The IRS missing participant program seems to be working well for us lately. You might check the Social Security death index on ancestory.com.

[Blinky the 3-eyed Fish]

How would any one would ever find the state where the money is being kept is beyond me.

Finding lost money is a simple internet search. My local news will have the occasional story on it periodically. I tried it for me and some relatives and found my grandmother had a lost bank account, but nothing for me. :angry:

In otherwords you cant file a claim for benefits as a participant if there is no plan.

While I am not a lawyer and you are, I can't see this as being the ultimate criterion. After all, what if the owner of a business took all the money and terminated the plan? Is there then no recourse? I see the same concept applying here, albeit, not quite in the same criminal context. There has to be recourse against someone even though no plan is around anymore. As for the particpants' duty, there are host of reasons why that may not have happened, like death, not understanding this responsiblity, whatever.

Lastly and most importantly, I don't see forfeiting the money is the right thing to do. An IRA rollover has a decent chance of getting to the participant. Forfeiting their money is exactly that.

[david rigby]

Blinky and mbozek both make valid points, but neither solution is complete. 56K is a lot! Neither course of action should be taken until the sponsor has exhausted all remedies for searching. Since the participant could be deceased, this means searching for relatives. But let's not assume relatives will do the searching, since they may have no evidence to suggest a search is necessary, and the creation of an IRA will be useful (to participant and/or beneficiaries) only if someone knows about it

There are many avenues for such searching, some suggested above, others may be discussed at the link above. So, why not focus on something useful:

mbozek,

assuming there is someone conscientious enough to do this search, can the account balance be used (within reason) to pay the cost of the search?

[mbozek]

Disposing of assets of missing participants upon termination of a DC plan is a vexing problem because there are no clear answers. This issue comes up in other contexts such as division of demutualizaton proceeds where former participants cannot be located.

I have not found any lawsuits by participants after plan termination and find it difficult to maintain because under ERISA a claim must be made by a participant against the plan. If the plan has ben terminated there is no party to sue. Allowing law suits for benefits against the plan administrator after the plan has been terminated creates vicarious liability for the plan administrator forever because any participant could sue for additional benefits any time after termination of the plan and disposal of the assets.

I dont know if particpants assets can be used to pay for a locator search. On one hand the search will benefit the particpant or his bene by distributing benefits that he would not otherwise know of. But if the purpose of the search is to enable the sponsor to terminate the plan it is a settlor expense.

[No Name]

There may be other records, such as health plan dependents, etc.

[Locust]

I totally disagree with the idea of forfeiting the account in this situation. Now that an automatic rollover is an option, it should be used.

The escheat issue is not a concern to me - in my state an individual whose bank account has been escheated can make a claim to the state and get a refund of the escheated amount, without earnings.

If the participant comes back and makes a claim within the next few years, which is more likely once he gets word from his buddies that the plan is terminated, it's a mess if the account has been forfeited. In that situation the fiduciary could be sued, I think, especially if there were any ambiguity in the plan documents. Much better to refer the participant to an IRA or to the state in this situation.

Also, you've got that old locater service from the IRS - who knows how long that takes? And the notice (based on the SSA that was filed) that will be sent to the participant when he or she applies for Social Security - if alive the participant will apply to SS and will learn about the benefit, and at that point he or she will need it.

Another thought, have you looked at the beneficiary designation form? I'd contact the person on it - maybe the participant is dead, the beneficiary can prove it, and the payment should go to the beneficiary?

Locust

[mbozek]

The reality is that lost participants rarely come back to claim plan assets for many reasons including death and deportation. While the employer should forfeit the assets upon termination only after a diligent search fails to locate a missing participant, it doesnt benefit the other participants if the funds wind up in some state abandoned property account forever in the unlikely event that the participant will return. I dont see how a fidicuary can be sued after the plan has been terminated because there is no plan in existance under ERISA to sue. If fids can be sued by missing participants after termination of the plan then fids have unlimited risk to any participant forever after plan termination for any reason, including claim for larger benefit, failure to pay a vested benefit, etc.

[Locust]

I can think of many situations in which a fiduciary could be sued after a plan termination. What if the fiduciary directed payment to the wrong participants? What if the fiduciary did something that was not authorized by the plan? What if the fiduciary had made grossly imprudent investments or investments that were prohibited transactions that resulted in significant losses to participants?

Just because there is no plan does not mean that all claims arising while the plan was in existence are extinquished by the plan's termination; otherwise that would be a easy way for fiduciaries to avoid liability.

$50,000 + is a significant amount for a fiduciary to have at risk, even if the likelihood of the participant making a claim is low.

[chris]

What does the Plan doc. say re locatinga lost participant or beneficiary? Our plan docs. specify that the account is to be forfeited and reallocated to other participants if ben/part. cannot be located after sending certified letter and after other diligent efforts to locate. The "other diligent efforts" to locate will include on-line search, letter forwarding service of IRS (in case ben. filed tax returns recently) and the SSA (in case ben. is employed). That should do it....but check plan doc. re what happens to $$$ if cannot located the part./ben.....don't just roll it over to an IRA b/c that's sounds good....

[mbozek]

The s/l for a breach of fiduciary duty is generally 6 years from the date of the violation.

[Guest Nautical]

Also, have you considered contacting the SSA? If the address is not available from any other source, the plan administrator may contact the SSA for assistance in forwarding a letter. The request to forward a letter should explain the strongly compelling reasons for wanting to get in touch with the missing person. The letter to be forwarded should be in a plain unsealed, unstamped envelope bearing only the mising persons anme and social security number. If the social security number is not known, SSA will need the date and place of birth (or names of parents, etc) and even last know address and on top of that employment period. The request should be sent to the manager of the local Social Security office.

Free tools for locating this participant:

www.rootsweb.com (death records)

www.zabasearch.com (most powerful people search)

www.classmates.com www.reunion.com (look at TVP highschool-resume)

Also, IRS has a forwarding address service as well....

[stephen]

Also Accurint

[Belgarath]

Reviving this old discussion. Just got a call from an advisor for a current client - the question involves one of HIS advisor's clients! Apparently the situation is this: PS plan participant terminated employment about 20 years ago, with a vested account balance of around $2,000. Supposedly, they performed diligent searches, etc., and could never locate the person, so after some unknown # of years, they treated the account as a forfeiture and reallocated it to other participants. (This was in the old days - now you would just do a mandatory rollover.) The plan was TERMINATED 10 years ago. Lo and behold, the participant has now shown up and wants his money. With interest, this would be quite a fair amount now. The employer that sponsored the plan does still exist.

What would you advise the employer here? Our documents used to allow such a forfeiture for a missing participant, but also specified that if they subsequently requested their money, that the employer would have to contribute it. I don't know what the document for this plan specified, and neither does anyone else, apparently.

Since there is no longer a plan, how can a contribution be made? Or should they tell the participant to take a hike, recognizing, of course, that a lawsuit is a possibility? I realize this is a matter for legal counsel, but I'm just curious as to what y'all think.

[Guest mjb]

Before answering the Q you have to review the rights of the parties-

The P has a right to a benefit under plan but if no plan exists there is no claim to be made under ERISA. Breach of fiduciary duty claim must be made within 6 years after the breach occurs (which would be the forfeiture of the benefit) and requires that participant prove that fids did not act responsibly in searching for participant before forfeiting the benefit. Also participant should have let plan know of his forwarding address. Finally who does the participant sue if there is no plan or fiducaries?

On the other hand defending against the claim is time consuming and a distraction and expensive if counsel is needed so employer should consider settlement w/employee in exchange for a waiver and release of all claims under the plan. $2000 for 20 yrs @6% is about $6000. In order to defend against the claim, can employer find plan docs and prove that a dilligent search was conducted?

[Guest ak]

Has any thought been given to the requirements under the final DOL rules released on 4/21/06 that seem to have been released to cover this exact situation under terminated DC plans. Also, seems you need to take into account the implications of the merger with the money purchase plan. Is there money that is technically subject to the QJSA rules. The previously mentioned DOL rules don't necessarily apply to money subject to the QJSA rules.

[Guest Pensions in Paradise]

Note that you do NOT adjusted the forfeited balance for gains/losses. So if the employer wants to pay this person off, it would only cost them $2,000.

[Guest CMC]

Anyone up for another variation on this theme -- although it doesn't involve a lost participant?

Let's call it: Obligation to Prove Distribution was Made?

Problem: Employee terminated in 1985 and is now deceased. Profit sharing plan in place at the time provided that payment was made to a departing employee upon termination. Child of deceased employee has called to say they cannot find evidence that payment was ever made.

Question: Does employer have an obligation to prove a distribution was made? It may not be able to at this date. Plan was terminated several years ago.

[Guest mjb]

Fact that heir cannot find any record that payment was made 20 years ago isnt evidence that payment was not made. I dont understand what is being asked. The question is what right does heir have to raise this issue? only party who could make claim for benefits would be estate of deceased, not heir, if the s/l has not expired. If plan was terminated there is no party to whom a claim can be presented.

[Guest Pensions in Paradise]

I'd inform them that the plan had been terminated and ALL participants had been paid out. If the records are still in storage why not offer to retrieve them at the individual's expense.