Plan Sponsors: Top Tips for Managing Missing Participants, from SHRM. Plan sponsors are required to make sure former employees can access their defined contribution (DC) plan savings after they’ve left the organization. However, an increasingly mobile workforce makes it challenging to keep track of terminated participants, who often “go missing.” Dealing with missing DC plan participants can be a real headache if you don’t stay on top of it. An article recently published by the Society of Human Resources Management (SHRM), which offers useful tips for plan sponsors to manage terminated participants, along with an update on some proposed legislation currently on the Hill, may help to ease the pain.
Employees who have left your organization, either for a new job or due to retirement, are still considered participants in your plan, even though they’re not actively contributing to their retirement account. As such, the Employee Retirement Income Security Act (ERISA) says plan sponsors are still responsible for communicating with them as much as with active employees.
The SHRM article cites a recent survey from business research firm Business Research Technologies (BRT) and Retirement Clearinghouse, which provides portability and consolidation services for DC plans. The survey found that:
- 11% of missing participants’ account records contained an outdated address.
- Most of these belong to Millennials, especially those with balances less than $10,000.
- Mergers and acquisitions make it difficult for former employees to find a left-behind plan.
- One in three participants in the survey learned about a retirement account they didn’t know they had.
How can plan sponsors better manage missing participants? For starters, when employees leave your organization, encourage them to take their retirement plan account with them and roll the money into their new employer’s plan. You might be tempted to maintain the assets to help your plan leverage economies of scale, which often leads to better-negotiating power when it comes to fees and other plan services. However, actually, maintaining a bunch of accounts with small balances won’t really help you accomplish that goal. Plus, it detracts from your plan’s efficiency.
In addition, when bringing new hires on board, check with them to see if they have retirement accounts from former employers, and encourage them to roll those assets into your plan. Another key step: remind existing employees that they have the option to consolidate retirement accounts from former employers into your plan. In doing so, they reap a variety of benefits, not the least of which is streamlining their retirement planning and tax paperwork, making it easier to keep track of their savings. Rolling the money into your plan provides them an opportunity to take advantage of useful tools such as asset allocation and investment advice, for example.
To stay on top of missing participants, SHRM recommends that sponsors should implement a program that is:
Periodic: Conduct a “bad address” audit once or twice per year, and update mailing addresses before sending out annual statements.
Event-driven: Do a rigorous search before a required major distribution — for example, participants turning 70 this year, because they are required to take a distribution from their 401(k) account when they turn 70 1/2.
SHRM suggests that one way to keep tabs on participants may be to allow them to provide personal email addresses to increase your chances of being able to contact them once they’ve left your organization. Typically, people hang on to their personal email addresses longer than they may remain at a single physical address.
The SHRM article also details guidance for sponsors from the Internal Revenue Service (IRS) and the Department of Labor (DOL) on tracking missing participants. Not surprisingly, the requirements are slightly different, but the bottom line is that plan sponsors must demonstrate a best-faith effort to find and contact missing participants. In addition, if you hire a commercial locator service, you have a fiduciary duty to monitor its efforts.
What’s more, the Pension Benefit Guaranty Corp. (PBGC) has extended its Missing Participants Program beyond its traditional focus — defined benefit (DB) plans — to include DC plans. According to SHRM, “Sponsors of terminating defined contribution plans have the option of transferring missing participants’ benefits to the PBGC instead of establishing an individual retirement account at a financial institution. Participant accounts will not be diminished by ongoing maintenance fees or distribution charges, and PBGC will pay out benefits with interest when participants are found.”
Finally, there is proposed legislation on the horizon: the Retirement Savings Lost and Found Act of 2018. It would create a centralized Office of Retirement Savings Lost and Found, “which would help participants and beneficiaries find unclaimed retirement benefits in plans subject to ERISA’s vesting rules, and provide plan administrators with a new option for investing the balances of missing or lost participants. Also, the involuntary cash-out limit for former participants would be increased to $6,000 from $5,000.”
It’s your fiduciary duty to stay in contact with terminated missing participants. These tips can make it easier, and with any luck, plan sponsors will be getting additional support from the government soon, if the proposed legislation passes. In the meantime, stay vigilant.
