Why Finding Them Should Be a Priority
If you have terminated participants with balances in your 401(k) plan, some of whom you can’t locate, you’re not alone; missing participants are an industry-wide problem.
What is a missing 401(k) participant? A missing participant is a former employee who:
A 2018 survey by Boston Research Technologies and the Retirement Clearinghouse estimates that 11% of terminated employees have old addresses in their plans and one of five relocations result in a missing plan participant. The research also suggests an excess of three million missing participants.
There are two main reasons why participants disappear. The first is frequent job-hopping, and the second is not keeping plan contact information up-to-date. Boston Research Technologies found another reason—one-third of their respondents didn’t know they had an account with a previous employer.
Missing participants have become a big enough problem that it has caught the attention of the Internal Revenue Service (IRS) and Department of Labor (DOL), who are stepping up plan audits to see if you’re making the requisite effort to find your plan’s missing participants.
It’s important to find your missing participants- they cost you money and increase your fiduciary liability. Plus, it’s much easier to administer a plan with clean data. Here are some of the reasons tracking down missing participants should be a priority:
As a plan fiduciary, you are required under the Employee Retirement Income and Security Act of 1974 (ERISA) to make every reasonable effort to find your plan’s missing participants. However, you have a couple of challenges facing you, says David Kaleda of the Groom Law Group:
Dealing with this is not easy and there’s a lot of uncertainty around how to go about it. The most recent guidance is from the DOL, Field Assistance Bulletin (FAB 2014-01), but it only addresses the missing participants of terminated plans. The guidance can be useful to ongoing plans; however, some plan sponsors are using it as a roadmap to find their missing participants.
FAB 2014-01 recommends taking the following steps:
Use additional methods if the above doesn’t produce a correct address:
Finally, document everything! It’s important to have a written policy in place detailing the procedural steps to be taken to identify missing participants. Conduct an annual review to identify these participants and list the methods used and the results of each search. The DOL will want to know this information if they ever audit your plan.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.
Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered Broker/Dealer and Investment Advisor, member FINRA/SIPC. LoVasco Consulting Group is independently owned and operated.
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