The Department of Labor (DOL) has updated its 2004 guidance on the steps necessary to satisfy the fiduciary duty to search for missing retirement plan participants. While much of the earlier guidance remains the same, the update was necessary to address the fact that certain previously mandated search methods are no longer available. In particular, the DOL had required plan sponsors to use letter-forwarding services offered by the IRS or Social Security Administration (SSA), both of which have since been discontinued. The new guidance (Field Assistance Bulletin 2014-01) instead requires the use of free Internet search tools.
The guidance is effective immediately, and plan fiduciaries should review and update their procedures for locating missing plan participants accordingly.
Under the updated guidance, if routine methods, such as first-class mail or electronic notification, are unsuccessful, plan fiduciaries must employ all the following methods to search for missing plan participants:
- Using certified mail
- Reviewing related plan records (e.g., a group health plan maintained by the employer)
- Checking with plan beneficiaries (e.g., the spouse or children) in the terminating plan and other employer plans
- Using free electronic search tools
Free electronic search tools include Internet search engines, public record databases (such as those for licenses, mortgages and real estate taxes), obituaries and social media. It is important to ensure compliance with any license agreement requirement for such resources.
If a participant still cannot be located, a fiduciary may need to employ additional strategies. These might include fee-based Internet search tools (subject to license agreement requirements), commercial locator services, credit reporting agencies, information brokers, investigation databases and other such services that may involve charges to the participant’s account. A plan fiduciary will first need to consider the size of the participant’s account balance and the cost of the additional search services when deciding whether any additional search steps are justified.
If the search methods are not successful and the plan fiduciary needs to distribute the defined contribution benefits to complete a plan termination, viable options include rolling over the benefits into an individual retirement account (IRA), establishing an interest-bearing, federally insured bank account in the participant’s name or transferring the account balance to a state unclaimed property fund. However, since the IRA is more likely than the other options to preserve funds for retirement, it is the DOL’s preferred distribution option.
Although the guidance applies only to terminating defined contribution plans, plan fiduciaries of defined benefit plans and ongoing defined contribution plans should also find it helpful. However, the method for distributing benefits belonging to participants who can’t be located in these other situations might differ from the methods discussed in the updated guidance. For example, a defined benefit plan fiduciary might need to purchase an annuity for a missing plan participant or turn the benefits over to the Pension Benefit Guaranty Corporation (PBGC).