The Department of Labor (DOL) recently issued three guidance documents addressing a plan fiduciary's obligations when participants or beneficiaries do not apply for retirement benefits because they cannot be located (or do not respond to critical plan communications). Specifically, the guidance lists best practices for plan sponsors in preventing or redressing a missing participant problem, describes the DOL's internal investigative processes when conducting a Terminated Vested Participants (TVP) audit, and details what steps the DOL requires fiduciaries to take with respect to searching for missing participants in terminating defined contribution plans that make use of the Pension Benefit Guaranty Corporation's (PBGC) Defined Contribution Missing Participants Program.
In recent years, the DOL has paid increasing attention to failures by retirement plans to timely pay benefits to participants due to incomplete or outdated contact information. What started as a pilot enforcement program out of the DOL's Philadelphia Regional Office has since been expanded nationally. In response to the DOL's enforcement regime, industry stakeholders have expressed concerns over the lack of guidance on the procedures that plan fiduciaries should take to address missing participant problems. The latest three-part guidance by the DOL provides much-needed clarity on plan fiduciaries' obligations and relevant enforcement procedures.
II. Missing Participant Best Practices Guidance
The first piece of DOL guidance provides an extensive list of "best practices" for plan sponsors to minimize or mitigate a missing participant problem. The DOL advises plan sponsors to examine their policies and procedures with an eye toward addressing "red flags" indicative of a missing participant problem. Such "red flags" 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 retirement benefits; missing, inaccurate, or incomplete contact information, census data, or both; and an absence of sound policies and procedures for handling mail, emails, or checks returned as undeliverable.
The guidance next lists many specific best practices under four main categories: (1) maintaining accurate census information for the plan's participant population; (2) implementing effective communication strategies; (3) conducting missing participant searches; and (4) documenting procedures and actions. The full list is available here.
Critically, the DOL also notes that in implementing best practices, plan fiduciaries should consider what practices will produce the best results in a cost-effective manner for their plan's particular participant population. In addition, plan fiduciaries should employ a cost benefit analysis, considering the size of a participant's accrued benefit and account balance along with the cost of search efforts.
III. Guidance on Terminated Vested Participant Audits
The second piece of guidance is an internal guide on DOL protocols for conducting TVP audits. The guidance explains that the audit program consists of three "key objectives":
- To ensure plans maintain adequate census and other records necessary to determine the identity and address of participants and beneficiaries, the amount of benefits, and when participants and beneficiaries are eligible to commence benefits;
- To ensure plans have appropriate procedures for advising participants with vested accrued benefits of their eligibility to apply for benefits as they near normal retirement age and the date they must start required minimum distributions; and
- To ensure plans implement appropriate search procedures for terminated participants and beneficiaries for whom they have incorrect or incomplete information.
The guidance alerts plan sponsors that DOL investigators may initiate an audit when it appears a plan has systemic issues with tracking TVPs and timely distributing benefits. In particular, this issue may be apparent from a Form 5500 filing reporting a large number of retired or terminated vested participants entitled to future benefits. The DOL may also initiate an investigation upon a plan sponsor's bankruptcy or involvement in a merger or acquisition, as the DOL believes such events risk loss of participant data. The guidance also outlines investigatory procedures, typical information and documentation requested, and protocol for ultimate resolution.
IV. Guidance on PBGC's Expanded Missing Participant Program
The final guidance document, a temporary enforcement policy, provides that terminated defined contributions plans generally may make use of the PBGC Defined Contribution Missing Participants Program (the Program). The guidance states that the DOL will not bring a fiduciary breach enforcement action against plan fiduciaries of terminating plans or qualified termination administrators (QTA) of abandoned individual account plans that transfer the account balance of a missing or non-responsive participant or beneficiary to the PBGC if they have complied with certain requirements. Specifically, the fiduciary or QTA must have conducted a diligent search for the plan participant or beneficiary, acted in good faith, and followed other administrative requirements, including providing notice to the participant or beneficiary and paying a fee to PBGC.
While the latest three-part guidance provides some clarity on a plan fiduciary's duties with respect to missing participants, note that it does not have the force of law. Furthermore, because the guidance takes a facts-and-circumstances approach rather than providing clear step-by-step guidance, many plan sponsors remain uncertain on procedures for handling particular missing participant situations, particularly where, despite employing best practices, a participant remains lost. Nonetheless, plan sponsors should be alerted to the missing participant issue and examine their procedures with careful attention to "red flags" and, as appropriate, implement the best practices the DOL has identified.
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