No More Missing Pieces: U.S. Department of Labor Issues Guidance on Missing Participants

On January 12, 2021, the U.S. Department of Labor (DOL) released additional guidance regarding plan fiduciaries’ duties to find and distribute benefits to missing retirement plan participants. This guidance is helpful because (1) prior guidance lacked clarity in the case of ongoing plans, and (2) missing participants have been a particular focus of DOL plan audits in recent years.

What’s New in the Missing Participant Guidance?

Red Flags

The DOL’s guidance identifies the following items as “red flags” that may signal that the plan has an issue relating to missing or nonresponsive participants:

1. more than a small number of missing or nonresponsive participants
2. more than a small number of terminated vested participants who have reached normal retirement age but are not receiving their pension benefits
3. missing, inaccurate, or incomplete contact information, census data, or both (e.g., incorrect or out-of-date mail, email, and other contact information, partial Social Security numbers, missing birthdates, missing spousal information, or placeholder entries)
4. absence of sound policies and procedures for handling mail returned marked “return to sender,” “wrong address,” “addressee unknown,” or otherwise, and undeliverable email
5. absence of sound policies and procedures for handling uncashed checks (as reflected, for example, by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks, or failure to reclaim stale uncashed check funds in distribution accounts)

Best Practices

The DOL guidance provides a checklist of best practices for defined benefit and defined contribution plan fiduciaries to follow to ensure that plan participants and beneficiaries receive their plan benefits. The DOL’s list of best practices is divided into four distinct categories :

1. maintain accurate census information for the plan’s participants
2. implement effective communication strategies
3. conduct robust missing participant searches
4. document procedures and actions
   

What Should Plan Sponsors or Fiduciaries Do Next?

Plan sponsors or fiduciaries should:

1. prepare or update written plan procedures regarding missing or unresponsive participants to include the “best practices” set forth in the DOL guidance
2. review the DOL’s new “red flag” checklist, and take action to eliminate any red flag items that could apply
3. confirm that plan recordkeepers and third-party administrators are implementing and following the plan’s procedures and document actions taken
4. clean up data and file feeds to their recordkeeper/third-party administrator
5. contact participants (both current and terminated/retired) and beneficiaries on a periodic basis to confirm or update their contact information
6. regularly audit census information and correct any data errors
7. conduct and document thorough searches for missing plan participants
8. not continue to deliver required communications to a known bad address without taking steps to verify the correct address or assume that recordkeepers/third-party administrators are tracking undeliverable or returned mail
9. in the context of mergers or acquisitions or a transfer to a new recordkeeper, ensure that participant data and records are accurately transferred and collected. For example, when a plan is acquired in connection with a corporate transaction, require the seller to provide records of missing participants and information regarding efforts to locate missing plan participants