Employee Benefit Plans: The 411

Valuable Information on 401ks, Pensions, ESOPs, Form 5500 Preparation + More

DOL Guidance on Missing Participants

In a previously issued blog titled “Have lost Participants in your 401(k) Plan?”, the topic of missing participants was addressed prior to the Department of Labor (DOL) issuing any guidance on fiduciary responsibility of plan sponsors in that respect. The guidance issued by the DOL in Field Assistance Bulletin (FAB) No. 2014-01, outlines fiduciary duties and missing participants in terminated defined contribution plans.

When a defined contribution plan is terminated, a plan administrator is required to distribute all of a plan’s assets as soon as administratively feasible after plan termination. Prior to making a distribution, the plan administrator is responsible for contacting plan participants for directions on how to remit their account balances. In instances where the participants do not respond to the correspondence, the plan administrator is required to complete the following tasks outlined in the FAB:

  1. Use certified mail; it’s an easy and low cost method to find out if the participant can be located.
  2. Check related plan and employer records. The terminated plan records may not be up to date, but records from a group health plan or similar records may be more current.
  3. Check with the designated plan beneficiary. If the participant has designated a spouse or relative as a beneficiary, they may be able to assist in providing the updated contact information for the participant. If there are privacy concerns, it is recommended that the beneficiary forward a letter to the participant.
  4. Use free electronic search tools. Plan fiduciaries must make use of the search tools that do not charge a fee, for example; internet search engines, public record databases, obituaries, and social media.

If all attempts to locate the missing participant or beneficiary have failed, a plan administrator must evaluate and select an appropriate distribution option to complete the plan’s termination. The preferred distribution option per Section 404(a) of ERISA is to rollover the funds into an IRA, which is more likely to preserve funds for retirement and will avoid taxation. As alternative options, administrators may deposit the funds into federally insured bank accounts or escheat the funds to the state unclaimed property funds. One hundred percent income tax withholding for a missing participant’s benefits is an unacceptable distribution option and is in violation of ERISA’s fiduciary requirements.

By Sarah McFarland