Lost Participants

[austin3515]

Is anyone out there opening "Missing Particpant IRA's" for particpants whose paperwork comes back return to sender and for whom "efforts to locate them" have come up dry?

We want to start doing this, but I'm concerned because none of our documents provide for automatic rollovers in the first place.

What are others doing about lost participants? We want to relieve ourselves of the issue as easily possible!

[Kimberly S]

Isn't one of the requirements for the automatic rollovers that the participant has been given at least 30 but not more than 180 days to make his or her decision? Because of that, we do not believe that you can establish a rollover on the basis of returned paperwork. However, if the 4 steps outlined by the DOL have been taken to allow them to be declared a lost participant, we do set up an IRA for them.

[rcline46]

Uhhh, Austin - what did you do in 2005? Did you reduce All forceouts to $1,000 or less? That is the only way to not have Auto IRA requirements in your plans.

Assuming the above, you (your clients) are now attempting force outs of amounts under $1,000. You are now stuck with the old rules which amount to leave in plan, or 100% withholding and the IRS really does not like this. You can forfeit the amounts, but you have to keep track of them forever in case the participants show up. Hie thee to a locator service (billable to the participant's accounts) and find them!

[austin3515]

We've done some research and in light of the DOL's FAB, no one seems to think forfeiting is a very good idea. And as you point out, we need to keep track of this forever. By the way, the locator services is the first thing we tried, but does not always work. And "Yes" we lowered the cash-out to $1,000 for all of our clients.

So Kim, even though a) the Plan is not terminating, b) your Plan doesn't provide for automatic rollovers and c) the balance is more than $1,000 (but presumably less than $5,000), you would still force them to a missing participant IRA after trying all four of the items in the DOL FAB?

This is exactly what I want to do. Does anything other than brilliant logic apply to support your conclusions? (knowing that logic doesn't go very far!).

[Bird]

Austin, I think you need to have the automatic rollover provisions in the plan in order to use them; I'm not sure why you're assuming Kim does otherwise.

We've done it with a couple of plans, but we're not ready to do this for everyone; it's going to require a better follow-up system than we have now.

[Guest mjb]

I have never understood why an advisor would recommend tranferring funds of a missing participant who cant be located to an IRA where the funds will escheat to a state treasury in about 3 yrs when the funds can be forfeited and used to benefit the plan participants as additional free contributions. Missing participants who cannot be located now rarely show up in the future because they are dead, left the country or dont want to identify themselves or reveal where they are living, etc. The plan only needs to keep a record of the amount of the vested benefit that is forfeited in the unlikley event that the participant returns.

Why is forfeiting a bad practice since it is expressly permitted under the IRS regs for Q plans under regs that apply to ERISA plans? The funds arent forfeited under ERISA since they have to be reinstated if the employee returns to claim the funds.

100% withholding has been disavowed by the IRS and doesnt prevent the employee from coming back to the plan to demand the funds if the employee cannot obtain a refund from the IRS.

[austin3515]

OK, what do you do before forfeiting them? I certainly like that, and I agree with you about the 411 regs. It was actually Corbel who told me the prudent fiduciary would likely choose NOT to forfeit.

[Guest mjb]

Did you ask why? Is it prudent for a fiduciary to turn the funds over to a state entity which will take title to the assets instead of allocating them to the remaining participants in the plan to increase their benefits? My problem with turning the assets over to an IRA that will eventually escheat to a state govt is the false assumption that somehow the participant will locate the assets head by the state instead of the state keeping the money since no search is conducted.

[Kimberly S]

Our document does call for forcing participants to an IRA rollover if the balance is between $1,000 and $5,000.

We are advising our clients to follow those 4 steps. I have heard from several clients who found the person with the IRS letter forwarding program. I have not personally heard from any who were unable to find them once they completed those steps. I can't say if that means it works well, or just that I didn't happen to get the call.

[Bird]

I'd be very careful about forfeiting. What happens if you forfeit someone and reallocate, the plan terminates a few years later, and then the participant comes calling for his/her money a few years after that?

It seems the government is encouraging and steering us towards forced IRA rollovers. I can't see why it wouldn't be prudent.

[Guest mjb]

If there is no plan, there is no one to make a claim against. The plan can carry the vested benefits until termination and then remit the funds to the PBGC.

[Steelerfan]

If there is no plan, there is no one to make a claim against. The plan can carry the vested benefits until termination and then remit the funds to the PBGC.

I don't understand this comment. If the balance is forfeited and reallocated to other participants and then the plan is terminated, all assets will be distributed to all participants (full vesting). What amount would be left to remit to the PBGC and why does the PBGC care, aren't we talking DC plan?--there is no such thing as a reallocation in a DB plan.