Send Out the Search Party: Retirement Plan Fiduciary Duties Under DOL Missing Participant Guidance
Employee Benefits Update
Date: February 22, 2021
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.
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:
- More than a small number of missing or nonresponsive participants.
- More than a small number of terminated vested participants who have reached normal retirement age but have not started receiving their pension benefits.
- Missing, inaccurate, or incomplete contact information, census data, or both (e.g., incorrect or out-of-date mail, email, and other contact information, partial social security numbers, missing birthdates, missing spousal information, or placeholder entries).
- Absence of sound policies and procedures for handling mail returned marked “return to sender,” “wrong address,” “addressee unknown,” or otherwise, and undeliverable email.
- 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).
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:
- Systemic errors in plan recordkeeping and administration that create a risk of loss associated with the failure of a terminated vested participant or their beneficiary to enter pay status before death or the imposition of excise taxes on required minimum distribution (RMD) amounts.
- Inadequate procedures for identifying and locating missing participants and beneficiaries.
- Inadequate procedures for contacting terminated vested participants nearing normal retirement age to inform them of their right to commence payment of their benefits.
- Inadequate procedures for contacting terminated vested participants (or their beneficiaries) who are not in pay status at or near the date that they must commence RMDs to inform them of actions the plan will take and what they must do to enter pay status and avoid RMD excise taxes.
- Inadequate procedures for addressing uncashed distribution checks.
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:
- Maintaining accurate census information for a plan’s participant population.
- Contacting participants, both current and retired, and beneficiaries on a periodic basis to confirm or update their contact information. The DOL states that well-run plans regularly reconfirm that the information in their possession is accurate.
- Flagging undeliverable mail/email and uncashed checks for follow-up.
- Providing prompts for participants and beneficiaries to confirm contact information upon login to online platforms.
- Regularly auditing census information and correcting data errors.
- Implementing effective communication strategies.
- Using plain language and offering non-English language assistance when and where appropriate.
- Stating upfront and prominently what the communication is about – e.g., eligibility to start payment of pension benefits, a request for updated contact information, etc.
- Clearly marking envelopes and correspondence with the original plan or sponsor name for participants who separated before the plan or sponsor name changed, for example, during a corporate merger, and indicating that the communication relates to pension benefit rights.
- Missing participant searches.
- Checking related plan and employer records for participant, beneficiary and next of kin/emergency contact information.
- Using free online search engines, public record databases (such as those for licenses, mortgages and real estate taxes) and obituaries to locate (or identify) individuals.
- Using a commercial locator service, a credit-reporting agency, or a proprietary interest search tool to locate individuals.
- If participants are nonresponsive over a period of time, using death searches (e.g., Social Security Death Index) as a check and, to the extent such search confirms a participant’s death, redirecting communications to beneficiaries.
- Registering missing participants on public and private pension registries with privacy and cyber security protections (e.g., National Registry of Unclaimed Retirement Benefits) and publicizing the registry through emails, newsletters, and other communications to existing employees, union members, and retirees.
- Documenting procedures and actions.
- Reducing a plan’s policies and procedures to writing to ensure they are clear and result in consistent practices.
- Documenting key decisions and the steps and actions taken to implement the policies.
- For plans that use third party record keepers to maintain plan records and handle participant communications, ensuring the record keeper is performing agreed upon services and working with the record keeper to identify and correct shortcomings in the plan’s recordkeeping and communication practices, including establishing procedures for obtaining relevant information held by the employer.
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.
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