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The Department of Labor (DOL) recently released documents that retirement plan fiduciaries can use for guidance regarding their duties under ERISA to locate and distribute retirement benefits to missing or nonresponsive terminated vested participants, which has been a primary focus of a significant number of DOL investigations during the past 15 years. For fiduciaries who have been subject to these investigations, the DOL’s positions reflected in the guidance will not be surprising. The guidance confirms that the DOL expects to see written policies and procedures regarding these terminated vested participants and puts in writing many, if not all, of the various suggestions DOL investigators have made for locating these participants during investigations. In certain respects, the documents also offer welcome transparency, in particular regarding the investigative processes and case-closing practices that investigators should be following when conducting these investigations.

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The documents include a discussion of “red flags” that lead DOL investigators to believe there are “systemic issues” in a plan’s administration of terminated vested participant benefits. These include:

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The existence of one or more of these red flags frequently results in the DOL investigator looking more closely for and finding one or more of the following:

Plan fiduciaries should consider engaging in a periodic self-review of plan participant data as well as plan policies and procedures to determine the extent of any red flags. The DOL treats policies and procedures implemented by a plan’s third-party record-keeper and/or other service providers as the policies and procedures put into place by the plan’s fiduciaries and therefore it is extremely important to understand and incorporate those policies and procedures into any self-review. Similarly, plan fiduciaries should monitor periodic reviews of participant data by a service provider.

The DOL states that plans with few missing and nonresponsive participants commonly have staff who ensure that plan records are up to date and proactively take steps to make sure benefits are timely paid to participants and beneficiaries. According to the DOL, these plans use “best practices” as part of an “ongoing culture of fiduciary compliance” and not simply as one-time or sporadic “fixes” that it believes have proven effective at minimizing and mitigating missing or nonresponsive participant issues. Examples of what the DOL considers to be best practices include:

There are many additional examples provided by the DOL in a document titled “Missing Participants – Best Practices for Pension Plans.” In providing a list of best practices, the DOL explicitly acknowledges that each practice may not be appropriate for every plan and that plan fiduciaries should consider what practices are appropriate for their participant population and unique facts and circumstances. Some of the practices provided (especially some not included on the list above), such as looking to group health plan records to identify updated contact information and publishing a list of missing participants publicly to the employer’s other employees, raise security and privacy concerns that should be carefully considered before blindly implementing them. Unfortunately, some of the practices are unnecessary and potentially counterproductive.

Support for Use of PBGC Missing Participants Program

Although styled as a temporary enforcement policy, the DOL does provide additional comfort for plan fiduciaries of terminating defined contribution plans who use PBGC’s Missing Participants Program for missing and nonresponsive participants. For a per-participant fee, fiduciaries may transfer missing and nonresponsive participants’ accounts to PBGC under the program following a plan termination provided they have completed a diligent search for such participants. Under the policy, a plan fiduciary may enjoy the benefit of the existing DOL regulatory fiduciary safe harbor regarding distributions from terminated individual account plans, which generally results in missing or nonresponsive participants’ accounts being transferred to an IRA, when transferring accounts to the PBGC in accordance with the program as long as the fiduciary otherwise complies with the safe harbor regulation and includes specific modifications to the notice it sends to affected individuals.

In many ways, these new documents provide a clearer and more organized statement of the DOL’s position on fiduciary obligations with respect to missing and nonresponsive participants and less of a new directive or bright-line rule on which retirement plan fiduciaries can rely. Many of the questions that existed prior to the release of these documents remain and they fall well short of the fiduciary safe harbor some had hoped might be provided. However, they do serve as a strong reminder of the significance the DOL places on fiduciary policies and procedures that are designed to ensure that benefits are actually paid to participants and their beneficiaries as required under the standard of care set forth in ERISA.

Dominic DeMatties 202.973.2744 <a href="mailto:Dominic.DeMatties@ThompsonHine.com">Dominic.DeMatties@ThompsonHine.com</a>

David Uhlendorff 216.566.5913 <a href="mailto:David.Uhlendorff@ThompsonHine.com">David.Uhlendorff@ThompsonHine.com</a>

or any member of our <a href="https://www.thompsonhine.com/services/employee-benefits-amp-executive-compensation" target="_blank" rel="noopener">Employee Benefits &amp; Executive Compensation</a> group.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

https://admin.thompsonhine.com/wp-content/uploads/2022/04/Employee_Benefits_Update_-_Retirement_Plan_Fiduciary_Duties_Under_DOL_Missing_Participant_Guidance.pdf

Send Out the Search Party: Retirement Plan Fiduciary Duties Under DOL Missing Participant Guidance

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