All too often, retirement plan administrators and benefits attorneys encounter situations with missing participants or uncashed checks that result in head scratching and exasperation.  It is difficult to believe that trying to deliver money to someone could produce such frustration, but it happens more than one would think.  In an attempt to alleviate some of these woes and help ensure that participants and their beneficiaries receive the retirement benefits due to them, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) came out with three related pieces of guidance on January 12, 2021: (1) a set of Best Practices for Pension Plans (the “Best Practices”), describing steps that plan fiduciaries can take to reduce missing participant issues; (2) Compliance Assistance Release No. 2021-01, outlining the investigative approach that guides the DOL’s regional offices under its Terminated Vested Participants Project; and (3) Field Assistance Bulletin 2021-01, authorizing fiduciaries of terminating defined contribution plans to transfer missing participants’ account balances to the Pension Benefit Guaranty Corporation’s (PBGC) Missing Participants Program as a matter of temporary enforcement policy.  This blog post highlights key points from the Best Practices and focuses on practical tips plan fiduciaries can take away from the DOL guidance.

Background

The DOL has increased its focus in recent years on missing participant issues, specifically on whether plan fiduciaries and service providers are taking sufficient steps to locate participants or beneficiaries who are entitled to a benefit but cannot be found.  While numerous DOL audits have centered on this issue, and the DOL has issued guidance on fiduciary duties and missing participants in terminating defined contribution plans (e.g., FAB 2014-01), there has been little regulatory input explaining how the audits would be conducted or how fiduciaries and service providers can demonstrate that they have satisfied their obligations under ERISA to search for missing participants in the case of an ongoing plan.  The DOL’s January publications, while largely nonbinding, provide welcome guidance.

Best Practices

In 2020, EBSA investigators helped missing and nonresponsive participants recover over $1.4 billion in benefits.  The DOL drew on this experience in developing the Best Practices, which it notes are not mandatory, do not have the force of law, and are only intended to “provide clarity” to plan fiduciaries on how to prevent missing participant issues before they crop up, and how to handle them once they do.  The DOL’s guidance is based on general fiduciary principles that apply equally to defined benefit and defined contribution plans.  The DOL also emphasized that plan fiduciaries are not expected to take every step discussed below; rather, fiduciaries should balance the cost and burden of these steps against the amount of money at issue, and should also consider which steps would be most effective in light of a plan’s participants.

Monitor for Red Flags

The Best Practices document begins by highlighting a number of “red flags” the DOL has identified that often indicate a deeper missing participant issue, including:

  • More than a “small number” of missing or nonresponsive participants.
  • More than a “small number” of participants who have terminated employment with a vested benefit and reached normal retirement age, but have not started receiving their pension benefits.
  • Missing, inaccurate, or incomplete contact information, census data, or both (for example, incorrect or out of date mail, email, and other contact information, partial social security numbers, missing birthdates or spousal information, or other “placeholder” entries, such as 01/01/1900 used for birthdates or John Doe for names).
  • An absence of sound policies and procedures for handling returned or undeliverable mail.
  • An absence of sound policies and procedures for handling uncashed checks.

Takeaway:  To keep red flags at bay, we recommend conducting regular audits of plan census information to identify potential issues.  Because large plans often outsource responsibility to a recordkeeper for maintaining and updating census data, we would advise: (1) reviewing the recordkeeper agreement to determine how often they audit census information; and (2) discussing with the plan’s recordkeeper steps that can be taken to keep information up to date. We also recommend understanding the recordkeeper’s process for handling change of address notices and returned or undeliverable mail, and developing a comprehensive policy that describes the process for handling missing or unresponsive participants.

Maintain Accurate Census Information

Next, the DOL points to active steps that plan fiduciaries can take to prevent red flags from arising.  As noted above, one of those steps is ensuring census information stays current.  In addition to auditing census information for red flags, the DOL suggests using the following methods, as appropriate:

  • Periodically contact participants (both active and retired) and beneficiaries to confirm or update contact information (which could include social media and next of kin/emergency contact information).
  • Make it easy for participants to update their contact information. For example, include contact information change requests in plan communications, allow participants to update contact information for themselves/their beneficiaries online, include prompts for participants and beneficiaries to confirm their contact information when logging into their online plan accounts, and then update census records based on participant updates.
  • Flag undeliverable mail, email, and uncashed checks for follow-up.
  • Pay particular attention around major corporate events, such as mergers and acquisitions, or a change of recordkeepers, which are all common times for plans to lose track of participants. The DOL noted that “well-run plans” will make missing participant searches of the plan at issue, related plans (e.g., health plans) and employer records (e.g., payroll records) part of the collection and transfer of records.

Takeaway:  To the extent possible, we recommend including contact information change requests in most, if not all, plan mailings and regularly reminding participants and beneficiaries of the need to keep contact information up to date.  Ideally, platforms used for participants and beneficiaries to access account information and make online elections would include a prompt upon login asking for confirmation of contact information.  Based on the DOL’s guidance, we also suggest adding fields for participants to include social media contact information—especially in the context of a younger participant population—such as Twitter and Instagram handles.

In the plan termination context where the plan’s recordkeeper is responsible for issuing checks to participants in satisfaction of plan benefits, it is essential to understand when the checks go stale and what processes the recordkeeper has in in place to deal with uncashed checks.  This is particularly important when seeking to transfer missing participant balances to the PBGC. 

Effective Communication Strategies

The DOL suggests the following practices in communications with participants and beneficiaries:

  • Use plain language and offer non-English assistance, and encourage contact through the plan/plan sponsor website and toll free numbers.
  • State upfront and prominently what correspondence is about, and make it identifiable to participants. For example, if a participant’s 401(k) plan changed names or plan sponsor after the participant terminated employment, label correspondence with the name of the plan or plan sponsor, as applicable, that was in use while the participant was an active employee.
  • Inform participants as to how the plan can help eligible employees consolidate defined contribution plan accounts or rollover IRAs.
  • Build in steps during the onboarding and exit processes to confirm or update contact information and other necessary information to calculate benefits, and remind employees of the importance of keeping contact information updated.

Takeaway:  Much of this guidance involves working closely with recordkeepers/other service providers that maintain the plan’s website and phone number.  We advise confirming capabilities with the service provider, such as determining what language assistance is available in light of a plan population’s needs and discussing how mailings will be labelled.  We also advise instituting a process to use during onboarding/exit interviews to confirm updated contact information, and then to transfer updated information to the recordkeeper.

Missing Participant Searches

The meat of the issue is what to do when participants are missing or unresponsive.  The DOL suggests “searching regularly” using “some or all” of the following steps:

  • Draw on information from related plans and employer/payroll records for participant, beneficiary, and next of kin/emergency information.
  • Check with designated beneficiaries and emergency contacts.
  • Use free online search tools like search engines and social media, or proprietary internet search tools.
  • Use a commercial locator service or a credit-reporting agency, or review public records databases (like those for mortgages or real estate taxes).
  • Attempt contact to the last known address through U.S. Postal Service certified mail or a private delivery service, or attempt contact by email, phone, text, or social media.
  • Search obituaries and death records if participants remain nonresponsive and then redirect communications to beneficiaries if appropriate.
  • Reach out to missing participants’ colleagues by, e.g., contacting employees who worked with the participant or union officials.
  • Register missing participants on public and private pension registries such as the National Registry of Unclaimed Benefits, and publicize the registry to participants.

The DOL noted that not all of its suggested practices to locate missing participants are appropriate for every plan, and plan fiduciaries should consider what practices would yield the best results taking into account the participant population, the size of a particular participant’s account balance, and the cost of search efforts.

Takeaway:  The DOL’s missing participant search guidance is wide ranging and the steps outlined above are not meant to be performed in any particular order.  Further, and as explicitly stated in the Best Practices, that document does not have the force and effect of law and is not meant to obligate fiduciaries to take any specific actions to locate missing participants.  Determining which steps to take, and how many, involves consideration of ERISA’s fiduciary duties, including the duty to act with the care, skill, prudence and diligence under the circumstances that another prudent fiduciary would use.  The DOL explicitly did not state exactly what a fiduciary must do to locate a missing participant, but did note that plan fiduciaries can consider the cost of the search and the size of the participant’s account balance. 

Much of the DOL’s guidance involves contacting people other than the participant – e.g., the administrator of another plan, the participant’s beneficiary, or the participant’s former coworkers.  The DOL even suggests publishing a list of “missing” participants, e.g., on the plan sponsor’s intranet, though plan sponsors may have significant concerns with this approach.  The DOL itself acknowledged that some of these steps may implicate privacy concerns, and we suggest checking with privacy counsel before employing these approaches.

Policies & Procedures

Finally, the DOL advises documenting policies and procedures to ensure they are clear, and documenting key decisions and actions taken to implement those policies.  The DOL also advises ensuring recordkeepers are performing agreed-upon services and working with the recordkeeper for communication practices.

Takeaway:  Types of policies that fiduciaries may want to document include: (i) guidance for handling undeliverable/returned mail, email, and uncashed checks; (ii) procedures for conducting regular plan census information audits; (iii) plans for collecting census information during employee onboarding and exit processes; and (iv) guidelines outlining what steps will be taken to take to locate missing participants.  Fiduciaries should also make sure to document all steps taken to follow these procedures and locate participants.  Having sufficient documentation could be especially useful in the case of a DOL audit.  Further, in the case of a terminating plan, one thing you can be assured of is that on audit, the DOL will request to see missing participant and uncashed check procedures and documentation of steps that have been taken in an attempt to locate missing participants.

 

This post summarizes the Best Practices document issued by the DOL.  Look for our follow-up post detailing other recent DOL guidance on missing participant issues.

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