Missing/Nonresponsive Retirement Plan Participants: Best Practices

Background: The Issue and Its Potential Consequences

Many retirement plans have individuals who have contributed to the plan but are no longer actively participating in it. Sometimes these individuals lose contact with the retirement plan and cannot be readily located when they are eligible for benefits. The common reasons for such missing participants include:

  • Participant employment with plan sponsors was terminated.
  • Participant address may have changed.
  • Participant may be deceased.
  • Participant may be unresponsive to communications from the plan.

Regardless of the reason, plan sponsors and administrators have a responsibility to:

  • Maintain complete and accurate census information.
  • Communicate with participants and beneficiaries about their eligibility for benefits.
  • Locate missing participants and beneficiaries.

Failure to meet these responsibilities is usually uncovered by United States Department of Labor (“DOL”) audit and can result in significant financial penalties as well as potentially threaten a plan’s tax-exempt status. In addition, missing participants and their beneficiaries face the possibility of significant unnecessary tax liability if they do not take required minimum distributions as specified by law.

New Guidance from USDOL: Best Practices

➞ Infographic: Employee Pension Plans: Best Practices for Missing Participants (PDF)

The DOL recently released long awaited guidance outlining best practices for retirement plans related to missing and nonresponsive participants. With this guidance, the DOL aims to help retirement plans implement effective policies and procedures to keep records up to date and proactively take steps to ensure that participants and beneficiaries receive the benefits they have earned in a timely manner. According to the DOL guidance, rather than sporadic, one-time fixes, plans should systematically implement a set of best practices. These include:

Maintain accurate census information for the plan’s participant population:

  • Include contact information change requests in plan communications.
  • Maintain and monitor an online platform that participants can use to update contact information.
  • Audit census information and correct errors on a regularly-scheduled basis.
  • Identify incomplete participant records and define a process for obtaining and incorporating missing information.

Implement effective communication strategies:

  • Use plain language and offer non-English language assistance where appropriate.
  • Build steps into both the enrollment and exit processes to:
  • Confirm contact information.
  • Confirm information regarding participant benefits.
  • Advise on the importance of ensuring the plan has accurate contact information.

Identify and seek out missing participants:

  • Note warning signs, such as lack of responses to mailings and uncashed checks.
  • Check related plan and employer records for participant, beneficiary and emergency contact information.
    • Use free online search engines, public record databases, obituaries, and social media to locate individuals.
    • Use outside resources—including commercial locator services, credit reporting agencies, and proprietary internet search tools—to locate individuals.
    • Attempt contact via United States Postal Service certified mail, or private delivery service.

Document procedures and actions:

  • Reduce the plan’s policies and procedures to writing to ensure they are clear and result in consistent practices.
  • Document key decisions and the steps and actions taken to implement the policies.

➞ Link: Full USDOL Guidance

Systems and Scheduling are Essential

Developing, implementing and scheduling these actions should greatly reduce issues with missing participants. Plan fiduciaries should craft policies and procedures that will provide the best results in a cost-effective manner for the plan’s participant population. These policies and procedures will vary somewhat depending on the plan’s particular needs. Additionally, the process for locating missing participants will depend on various facts and circumstances, including the size of the participant’s accrued benefit and the cost of the search efforts.

The labor and employment attorneys at Holm & O’Hara LLP can assist you in reviewing your current approach to missing plan participants, developing and documenting best practices that will work well for your plan and ensuring that these practices are effectively implemented, administered and adjusted.

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