"Lost Participants"

[Guest Laura Millwood]

Can you forfeit a lost participant's balance after a number of years? Plan document says you can forfeit, but not until age 62 or Normal Retirement. Plan sponsors agree to repay into plan participant's balance if he is located. Balance is less than $10 and the cost to maintain his account is greater than this per year. Does anyone think it would be acceptable to forfeit in a case such as this? Any other suggestions?

[Dan]

We have prepared a cashier's check made payable to participant and kept it with other client records. While we are not sure this is an acceptable rememdy, it seems safe to argue that if this were not done, participant would have no benefit at all.

[Tom Poje]

you might try writing the Disclosure Officer at the nearest IRS District office.

supposedly if the request is less than 50 people they will forward mail for free.

"the letter can be no more than 3 pages. it appears the plan would need to write a letter for the IRS to forward stating that the plan is holdoing assets and who to contact, as opposed to a complete distribution package. The IRS also sets forth suggested language explaining the letter forwarding program. disclaimer should read

In accordance with current policy, the Internal Revenue Service has agreed to forward this letter because we do not have your current address. The IRS has not disclosed your address or any other tax information and has no involvement in the matter.

(all this comes from thePensionActuary issue Jan-Feb 1999)

[Guest Laura Millwood]

They have already tried getting SSA and IRS to forward letters and haven't heard anything from the participant. This has been going on since 1992 and they want to clear his account. Any other suggestions?

[Ervin Barham]

PPD has such a provision in its prototype that allows a participant who cannot be found to be forfeited. If the participant later comes forward to claim the funds, the Advisory Committee must restore the benefit.

The other suggestion would be to contact your prototype provider to see if they have similar language or contact the person who drafted the plan to amend the plan to allow this. Of course, you would then need to get IRS approval and it may become an individually drafted plan.

[Guest Ray Williams]

The other method we have seen advocated, and some of our clients have used is the " 100% withholding " method. You send all of the account balance to the IRS, file a form 945, a form 1096 and send a 1099 to the last known address. You have now remved the account balance from youu accounting. If the for participant ever files a tax return, the additional withholding will be credited by the IRS and either used to reduce taxes or paid to the taxpayer. There is now official approval for this methods, but the IRS has declined to comment when the issue is addressed,

[Tom Poje]

ooops. Ray did not mean 'now official approval' but rather, that there is 'NO official approval' for this method.

sorry for any confusion.

[david rigby]

This issue is addressed for terminating plans in a Q&A posted on the "What's New" page as a Technical Tip dated 6/22/99.