Missing Participant

[Guest Cbanarer]

I know this has been addressed before. What does one do if a participant has left the company, has a vested balance, and cannot be located?

The employer has already tried to locate him, and has sent letters to the IRS and SSA to be forwarded according to their procedures.

One suggestion was made awhile ago that the trust obtain a cashier's check so that the funds are out of the trust (rather than having an outstanding check). If the cashier's check remains outstanding, what does the bank do? Will the trust eventually be credited back with the money and if so can it be absorbed rather than held for the missing participant.

Why can't this $ just go to the State as unclaimed funds? Other ideas?

[david rigby]

Not sure of all the facts.

If this is a DB plan that is terminated(ing), then the PBGC has a Missing Participants Program. Does not apply to other plans.

If this is a DB plan that is not terminating, then what is the big deal? Just leave it as a vested terminated participant. If you have done the required notice about the vested benefit, then the ball is in his court to come back to the plan when he reaches retirement age. By the way, I suggest that your communcation to the vested terminated EE state that and state that it is his repsonsibility to keep you informed of his address. Also, do not destroy any paperwork that documents this benefit or its effective date.

If this is a DC plan that is terminated (ing), then you need to do some more searching, using such sources as commercial locater services. See PBGC regs on plan above for their suggestions on possible sources of information. (By the way, you should probably have the money invested in a separate account while you are doing the seaching.) I don't know how you could have an outstanding check for this since you cannot write the check until the participant makes an election on a Direct Rollover (unless not more than $200.)

If this is a DC plan that is not terminating, then what is the big deal? Do a search if you want, but if you cannot find him, just leave it in the account.

There have been other discussions about sources of information. Try doing a search on the Message Boards, using key words such as "missing" or similar.

[This message has been edited by pax (edited 01-29-99).]

[imchipbrown]

These accounts are usually small. I don't know about anyone else, but if I have a $5,000 account somewhere, I want my money.

I have a client who mimimally funded his PS Plan for years, and people have also accumulated funds through forfeitures.

The problem became, terminees with < $100 wouldn't bother to respond and fell off the face of the earth.

The plan was approaching 100 participants, and these dead accounts could eventually push the plan into audited financial land.

So, after the IRS forwarding program for the most part failed, we withheld 100% of distributions and sent them to the IRS with 1099-Rs to the last known address.

[richard]

This has been an administrative problem for years. I believe the PBGC's program for DB plans is a step in the right direction, and hopefully it will be extended to DC plans.

For non-terminating DC plans, I agree with the comment "what's the big deal, just keep track of him."

For terminating DC plans, I've heard and seen over the years various interesting approaches (some of which have been discussed here); I'm not sure what the IRS actually does in a plan termination if the plan sponsor does something they don't like.

By the way, does anyone have a thought on the following idea for terminating a DC plan with missing participants. Do a spinoff of the plan into two plans; Plan A with all of the participants that can be located, and Plan B with the missing participants. (Obviously, a prototype document would keep costs down.) Then, terminate both plans. And, if the IRS doesn't like what you have done with Plan B and they disqualify it, what is the damage? Plan A, I belive, would be safe. (Maybe this is a lot of work for nothing, but for clients who are very concerned about this, ... )

[Guest Bill]

Agree if it's a DB plan you pay it to PBGC and you're done with it. If it's DC, then if you have truely exhausted all ways to search then most plan documents allow for the money to be re-allocated as a forfeiture. Only risk is if the missing participant later surfaces and asks for benefit, employer has to come up with it but if it's a small amount it's usually worth that risk.

[Guest victoria davis]

IRS rules permit unclaimed accounts to be forfeited so long as the plan provides that if the participant shows up the funds will be restored (without earnings). I have received IRS determination letters on numerous plans with a provision providing for forfeiture of unclaimed accounts. Forfeiting the funds lets the employer benefit by reducing its future contribution obligation by the forfeiture amount. In addition, just leaving the money in the accounts and keeping track of it is a big deal! Not only does the employer have to pay an annual fee in most cases for the recordkeeping on these accounts, but you have to deal with the unresolved issue of escheat. If the state escheat laws are not preempted by ERISA, then the plan is obligated to send the funds to the state, but if the laws are preempted, then to do so, may disqualify the plan and/or expose the fiduciaries to liability. I am aware that some large recordkeepers routinely escheat funds. All in all, forfeiture is by far the best approach!

[david rigby]

Interesting comments above on escheat and whether the non-distributed participants put a plan in an audit situation. Both good points.

Perhaps, if a particular plan sponsor has much of these, the plan should be amended to accelerate the payment date, before the terminating participant "leaves the area".

If you use the forfeiture route, be sure that you keep good records of the amount, date, SSN, vesting

[Guest Robert Collins]

What is the reference (code,regulation, notice, etc.) that allows a missing participant's account to be forfeited?