Missing Participants

[ERISAWiz]

I've read the recent (and previous) guidance from the DOL regarding how a terminating DC plan should deal with missing participants. However, I've never been able to find guidance about how a strong, active (i.e. non-terminating) plan should deal with missing participants without violating any fiduciary duties. For example, we have a DC plan whose administrator would like to know how to deal with missing participants with small account balances. Obviously the admin can and should use the same search methods used for terminating plans, but what happens to the account balances? Roll them over to an IRA? Escheat to the state? Do nothing?

Thanks in advance for any help.

[MoJo]

I think escheating to the state is clearly not the path to take..... My preferred approach is roll-overs - even of very small balance (with the exception that anything below the "cost" of distribution is "forfeited).

[ERISAWiz]

Thanks for the response MoJo. Is there any guidance for active plans on this issue that you're aware of?

[BG5150]

The plan we deal with says that if an account is not paid out 5 years after it becomes payable because the participant cannot be located, the account will be forfeited. (As long as the administrator sent a registered letter with return receipt to the last know address)

It's a Volume Submitter plan, so that provision has the IRS blessing, at least.

[Effen]

"It's a Volume Submitter plan, so that provision has the IRS blessing, at least." Ha Ha - I would certainly not hold that assumption.

I assume you saw the EBSA Assistance Bulletin 2014-1 that was released early this week, but that only applies in the case of plan terminations.

I think your only real option is the forced rollover. I would never recommend a forfeiture unless the amounts were very, very, very small.

[QDROphile]

Forfeiture is an acceptable approach, but I would not forfeit until distributions are mandatory, which does not include a provision that is triggered by simply losing touch with the participant. It would work with mandatory distribution of small balances, keeping in mind the mandatory rollover rules.

[SearchLight]

The document I use has the same forfeiture provision at NRA, but I hesitate to use it. The major downside with the forfeiture option is that doing so makes the fact that the individual is entitled to a benefit fall off the map, which is a pain in the neck if the individual comes forward at some point in the future. If you forfeit someone today and they get a letter from the SSA in 2044 saying "hey, you might have a benefit in the XYZ plan!," will you have the records to figure out what you did, why you did it, and how much you might owe that participant?

I'd prefer to never deal with that headache, so auto rollover to a provider with a robust search process would be my top choice. While I know other providers prefer the $1K cashout limit to avoid the hassle of auto rollover, your situation is one of the reasons why I've come to like the $5K with auto rollover. The initial rounds of validating who's truly missing and getting the cashouts done is a pain, but once you've built a good process, staying on top of it isn't so bad. We also supplement this process by regularly doing address searches and keeping a tight eye on returned statements and updating address records promptly - the best way to avoid the problem is to keep from losing the participant in the first place.