Missing 401k Participants – What Happens to Their Accounts? When some participants in 401k or 403b plans terminate their employment, they leave their money in the plan. What happens when plan sponsors cannot find those people?
Listen to Peter Preovolos, founder of Penchecks and the National Registry of Unclaimed Benefits, discuss the problem and the unique solutions the industry has devised.
Full Transcript Below:
Fred Barstein: Fred Barstein with 401kTV here in Las Vegas at a NIPA annual conference for this week’s edition of Fred Talks. And I am here with Peter Preovolos who is co-founder and current president and CEO of PenChecks. He’s been there for 24 years and before that was a TPA Trust, President of NIPA at one point, and also the Head of San Diego’s retirement system. So, congratulations on all of that. Welcome, Peter.
Peter Preovolos: Thank you. Great to be here, Fred.
Fred Barstein: Okay if we ask you a few questions?
Peter Preovolos: I would love it.
Fred Barstein: Okay. So, I know a lot of what PenChecks focuses on is finding missing participants within defined contribution plans. And before we get into how your company is solving that problem, let’s talk about the issue, about missing participants. How does that come about? And what’s wrong with the system that sort of creates that problem? The leakage?
Peter Preovolos: Well, it is a huge problem as you know. It’s a multibillion-dollar problem. It comes about from a lack of really staying in touch with your employees, throughout their employment history with you, and then especially as they leave, their exit of the company. Is somebody staying on top of them, making sure they understand that they’re going to be receiving instructions on benefit payments? If they’re gonna move, please make sure you notify your former employer that you’re moving. And so, what happens is, the person leaves, they receive something in the mail about what would you like to do with your benefits. Maybe they have moved by now or they ignore it. Over time, what happens is that communication is broken. And the employer of course now is in a quandary. What do I do?
Fred Barstein: Right.
Peter Preovolos: And if the account balance of the participant is under 5,000 the law says the employer can establish an IRA for them.
Fred Barstein: Right. It’s called a Deemed IRA. They can get them out of the plan, but if it’s not 5,000, what do they do?
Peter Preovolos: Then they stay in the plan.
Fred Barstein: Over five, so it stays over. So, the company could be saddled with lots of people in their plan. They don’t know where they are. They can’t communicate with them. So, how does PenChecks help? What do you guys do?
Peter Preovolos: Well, one of the things we do is that we’ll do a search immediately. So, you have submitted something to us about a participant-
Fred Barstein: A plan sponsor.
Peter Preovolos: … a plan sponsor. Submitted an individual’s name, their account balance. Can’t find them, we do a search. If we’re unable to locate them under that search, then the plan sponsor has a choice. If it’s under 5,000 they may set up an IRA with us. If it’s not under 5,000, the money will stay in the plan ’til that participant is located.
But let’s take the case where it’s under 5,000. We’ve now established an IRA. What we created when we first got into the creation of a default IRA, we created a company called The National Registry of Unclaimed Retirement Benefits.
Fred Barstein: It’s a catchy name.
Peter Preovolos: Thank you very much, Fred. The purpose really was, that what happens if you’ve turned somebody’s money over to us, how do they find it?
Fred Barstein: Yes.
Peter Preovolos: How do they know where it’s at? And so, with The National Registry, there are 50 word/word phrase combinations in both English and Spanish that eventually will get somebody to that site. So, for example, if you said [speaking Spanish 00:03:39], it’ll get you to the site. And when you get to the site, it asks one question, enter your Social Security number. Don’t want your name, don’t want an address.
Fred Barstein: How many people and assets do you have in that National Registry?
Peter Preovolos: Oh, the National Registry’s gotta have probably a database of about a half a million people in it.
Fred Barstein: A half a million people and all of those people have some, like, Deemed IRA in there?
Peter Preovolos: Absolutely.
Fred Barstein: And where are the assets? How much money are we talking?
Peter Preovolos: Well, those assets are held in an FDIC insured …
Fred Barstein: You do?
Peter Preovolos: Yeah, totally.
Fred Barstein: Safe accounts, yeah.
Peter Preovolos: So, I’ll say that. Well, it’s my art design. That’s the Department of Labor …
Fred Barstein: That’s what they [crosstalk 00:04:20]-
Peter Preovolos: … regulations. Yeah, it has to be a [crosstalk 00:04:24].
Fred Barstein: That’s a big problem we talk to plan sponsors about, those missing participants. Whether they’re under 5,000 or over, do the plan sponsors engage with you directly on this?
Peter Preovolos: It depends. Many times, depending on the size of the company, we’re talking Fortune 1,000, 2,000-sized company, oftentimes they engage directly with us. The smaller companies engage with us through their actuary or their TPA firm, or recordkeeper or advisor, absolutely.
Fred Barstein: Okay, and so online it’s PenChecks.com?
Peter Preovolos: Yeah.
Fred Barstein: All right, very good. Well, thanks for sharing that. That’s really valuable information. I know it’s a hot topic with our plan sponsor community.
Peter Preovolos: I might say one other thing, with The National Registry, let’s say a plan sponsor somebody that has more than 5,000, and they’ve done a search, sent out the certified letter and still haven’t found them. Go online, register them with The National Registry. Doesn’t cost you anything. We created that company-
Fred Barstein: And you’ll help find them.
Peter Preovolos: … we created the company as a non-
Fred Barstein: Not-for-profit?
Peter Preovolos: Not-for-profit organization. So, there’s no cost. So, now you can say I’ve closed the loop or done the [inaudible 00:05:32] asked me. And I’ve also registered them with the National Registry.
Fred Barstein: You got all the prudent documentation, which is what ERISA calls for.
Peter Preovolos: That’s exactly right. Fred, thank you very much for this opportunity. It was a pleasure.
Fred Barstein: Thank you, Peter. Thanks for watching this week’s version of Fred Talks, and stay tuned for more. Thank you.
