American Benefits Council suggestion about missing or unresponsive participants

[Peter Gulia]

Those who have remarked on some investigators’ unsupported assertions about which methods and how much effort a plan’s administrator ought to use in searching for a missing or unresponsive participant might want to read this American Benefits Council letter.

 

https://www.americanbenefitscouncil.org/pub/?id=d68a50ca-908c-9e37-d53d-3111689f91ff

 

[MoJo]

Thanks Peter.  The list of "issues" in many ways parallels our experience for a book of business consisting of clients considerably smaller in size than the average ABC member company....

[Peter Gulia]

Perhaps those who feel an administrator should do more to locate a participant (or to urge a participant to respond) might think twice if the administrator allocated the expense of each search or other effort as a charge on the account of the missing participant.

[MoJo]

14 hours ago, Fiduciary Guidance Counsel said:

Perhaps those who feel an administrator should do more to locate a participant (or to urge a participant to respond) might think twice if the administrator allocated the expense of each search or other effort as a charge on the account of the missing participant.

That has been our argument with the DOL - and they (at least the auditors we've worked with) say "OK" - even if it depletes the account.  Same for small balance cash-outs.  In plan, there is no per participant fee and institutionally priced investments.  IRA provider charges $50 per year and retail priced investments.  According to the DOL, doesn't matter.  Cash them out.  We have one plan sponsor who is facing the expense of rebating ALL of the fees to terminated participants with under $5k balances (despite the fact that those participants actually benefited from the expenditure of those fees).

[ESOP Guy]

5 minutes ago, MoJo said:

That has been our argument with the DOL - and they (at least the auditors we've worked with) say "OK" - even if it depletes the account.  Same for small balance cash-outs.  In plan, there is no per participant fee and institutionally priced investments.  IRA provider charges $50 per year and retail priced investments.  According to the DOL, doesn't matter.  Cash them out.  We have one plan sponsor who is facing the expense of rebating ALL of the fees to terminated participants with under $5k balances (despite the fact that those participants actually benefited from the expenditure of those fees).

What do DOL auditor care if the person benefits or not?  it isn't their money there are rules to be followed. 

At the risk of getting ideological while government is necessary this is big part of why it will never run well.   There is no go way to align the employee's compensation to the actual good public policy.  You can't have them making up their own policy as the attachment in the original post makes clear as some will demand things like you make all possible effort to find there people.  You can't write a rule that covers all situations.  You wish you could count on good regulatory discretion by them but there is too much evidence to the contrary. 

[MoJo]

3 minutes ago, ESOP Guy said:

What do DOL auditor care if the person benefits or not?  it isn't their money there are rules to be followed. 

It is a dispute over the "rules" that is the problem.  Our plan documents make cash-outs permissive (or so we believe).  As far as the missing participants are concerned, the standard is "reasonable" search.  I would argue it isn't reasonable to spend $1000 to find a participant with a $500 balance.

Besides, plan interpretation and expenditure of plan assets is a FIDUCIARY matter - which is a judgment call based on what a "prudent expert" would do in like circumstances with similar information.  The DOL should monitor the PROCESS (ensuring it is consistently applied, reasonable, etc.), but not the conclusion.

Some may disagree, but....

[Bird]

30 minutes ago, MoJo said:

Our plan documents make cash-outs permissive (or so we believe).

I remember seeing this in the prior thread and not quite following.  I don't believe you can have "permissive" cash-outs.  That's why we generally prefer not to have them in our docs; I see it as something else to screw up (i.e. not doing a cash-out would be an operational failure).  I vaguely remember this changing in some LRMs for a required restatement, but could be wrong...

[Belgarath]

"As far as the missing participants are concerned, the standard is "reasonable" search.  I would argue it isn't reasonable to spend $1000 to find a participant with a $500 balance."

At the risk of offending certain people out there, I would assert that anyone who isn't mentally arthritic would agree with you. For anyone who disagrees, you are more than welcome to your opinion.

As to the fact that certain DOL auditors lack even a vestige of common sense, in the words of Mark Twain, "Let us draw the curtain of charity over the rest of the scene." 'Nuff said.

[MoJo]

13 minutes ago, Bird said:

I remember seeing this in the prior thread and not quite following.  I don't believe you can have "permissive" cash-outs.  That's why we generally prefer not to have them in our docs; I see it as something else to screw up (i.e. not doing a cash-out would be an operational failure).  I vaguely remember this changing in some LRMs for a required restatement, but could be wrong...

The language is (and this is not verbatim):  At the direction of the Plan Administrator, the Trustee shall ....

The Trustee has a mandate - but only triggered when the PA says so.  Nothing says the PA has to say so.  We ALWAYS caution plan sponsors to have a policy and stick with it.  It's inconsistency in approach that we think is the bigger problem.

[MoJo]

3 minutes ago, Belgarath said:

At the risk of offending certain people out there, I would assert that anyone who isn't mentally arthritic would agree with you. For anyone who disagrees, you are more than welcome to your opinion.

As to the fact that certain DOL auditors lack even a vestige of common sense, in the words of Mark Twain, "Let us draw the curtain of charity over the rest of the scene." 'Nuff said.

Except the DOL has the power to compel compliance with their conclusions -  as I indicated above, a client of ours is being told they MUST reimburse the accounts of the small balance termed participants for ALL of the expenses (including internal investment expenses charged by the mutual fund companies).  They can ignore that - at their peril.  The next step is litigation.

[Belgarath]

Agreed. My intent was rather to avoid publicly utilizing the appropriate pejorative terms applicable to the rogue DOL auditors.

[MoJo]

31 minutes ago, Belgarath said:

Agreed. My intent was rather to avoid publicly utilizing the appropriate pejorative terms applicable to the rogue DOL auditors.

Well, as pointed out in the ABC letter, there appears to be many "rogue" DOL auditors - and the biggest problem is the lack of consistency - due to the lack of guidance.  If we had some indication from the DOL as to what the standards are for some issues, we could actually get our clients to avoid them.

[Peter Gulia]

A question:  If a plan's sponsor amended a plan so it does not provide an involuntary distribution (except as needed to meet IRC 401(a)(9)), whether mandated or at the administrator's discretion, would that change resolve many of the concerns MoJo describes?

For a plan that does not "cash out" small-balance accounts, is it feasible to charge against the accounts of severed-from-employment participants a proper share of the plan's administration expenses?

 

[My 2 cents]

23 hours ago, Fiduciary Guidance Counsel said:

A question:  If a plan's sponsor amended a plan so it does not provide an involuntary distribution (except as needed to meet IRC 401(a)(9)), whether mandated or at the administrator's discretion, would that change resolve many of the concerns MoJo describes?

For a plan that does not "cash out" small-balance accounts, is it feasible to charge against the accounts of severed-from-employment participants a proper share of the plan's administration expenses?

 

If there is no compulsion on the plan administrator/trustees to cash the balance out (with all cash-outs having to be initiated by the participant), how could it not be feasible to assess expenses in the same way as is being done for active participants?  I presume that the DOL has no objection to expenses being assessed against accounts of terminated participants that are, for example, in excess of $50,000.

[Peter Gulia]

My 2 cents, thank you for thinking about this.

My question is not about whether relevant law permits a plan to charge against the accounts of severed-from-employment participants a proper share of the plan's administration expenses.  I assume the law permits this.

Rather, my question is about whether there are practical constraints, perhaps following recordkeepers' business methods, on implementing those charges.

BenefitsLink mavens, any thoughts about my (restated) question?

And how about my implicit assumption that, if plan-administration expenses are fairly apportioned, a plan's sponsor might be relatively indifferent to whether a small-balance account is distributed or remains invested?

 

[K2retire]

26 minutes ago, Fiduciary Guidance Counsel said:

And how about my implicit assumption that, if plan-administration expenses are fairly apportioned, a plan's sponsor might be relatively indifferent to whether a small-balance account is distributed or remains invested?

 

I think a big part of the reason that the sponsor doesn't want to keep those small balances has to do with distributing all of the required notices to someone who may or may not bother to keep their address up to date.

[Peter Gulia]

Is it permitted (and practical) to charge a participant's (or beneficiary's) account for the plan-administration expenses of delivering required notices and other prudent communications?

 

[RatherBeGolfing]

FWIW, I just came from a local "benefits round table" and one of the ERISA attorneys I spoke to said that these are absolutely regional initiatives that are spreading.  This would make it even more concerning than rogue auditors since they would be acting on orders from higher ups.

One of his examples included refunding not only fees and expenses like MoJo has discussed, but also investment losses. The idea being that the account would not have suffered those losses if distributed timely.

[Peter Gulia]

Also for what it's worth (which might be little) and without remarking on any EBSA investigator's proposed remedies (and what an administrator and its counsel might do to resist them), I think a plan's administrator must obey the plan's governing documents (unless a document's provision is contrary to ERISA).

If a plan mandates involuntary distributions of a severed participant's small-balance account, the administrator must do what the plan provides.

If a plan permits its administrator to decide involuntary distributions in the administrator's discretion, the administrator ought to design, following ERISA 404(a)(1) duties, an exclusive-purpose prudent procedure for deciding which conditions make it right to pay a distribution and which conditions make it right not to pay a distribution.