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Pension Plans: The Search for Missing Participants

Job hopping is on the rise. In fact, a new survey revealed that 64% of professionals feel that changing employment every few years is an effective way to get a higher salary.¹ This trend has led to more and more workers failing to update their contact information with previous employers, which is troublesome for pension plans because these individuals often become “missing participants.”

In some cases, these workers earned a pension benefit and were not eligible to take it at employment termination, or they chose to defer the benefit to a later date. Some defined benefit pension plan participants may not even realize they are earning a benefit since they are not contributing to the plan. Because job hopping is more common among younger workers, this demographic is more likely to accumulate a number of different retirement accounts throughout their careers. This is partly due to an increased use of auto enrollment for 401(k) plans and accelerated vesting in cash balance plans. For plan sponsors to effectively manage their pension plans, they need to make every effort to find these missing participants.pension plans

Searching for Participants
Plan sponsors are expected to maintain current records for all former employees who have earned a benefit in their pension plans. Special effort should be made to locate participants who are at their normal retirement date (or optimal retirement date, if earlier) and those who have attained age 70½. Here are some key points that plan sponsors should know.

  1. In October 2017, the IRS issued new guidance regarding pension plans. To avoid a challenge by IRS examiners for failure to make a required distribution, plan sponsors must be able to show they have taken the following steps:
    • Searched their records and those related to the plan, as well as publicly available records or directories for alternative contact information.
    • Used any of these search methods:
        – A commercial locator service
        – A credit reporting agency
        – A proprietary internet search tool for locating individuals
    • Attempted contact through the United States Postal Service (USPS) certified mail to the last known mailing address and through other contact information (including e-mail addresses and telephone numbers)
  2. The Pension Benefit Guaranty Corporation (PBGC) expanded their Missing Participants Program in 2018 to include defined contribution plans. Previously, if the plan administrator of a terminated defined contribution plan was unable to locate a participant, the benefit had to be transferred to an IRA for the participant. Now the benefits of missing participants can be transferred to the PBGC, but there are some important stipulations to keep in mind:
    • There is a one-time per participant administrative fee (currently $35), not applicable to benefits of $250 or less, and there are no maintenance fees or distribution charges.
    • Benefits are credited with earnings at the federal mid-term interest rate and there is no risk of investment loss.
    • Benefits valued at $5,000 or less will be paid as a lump sum; benefits valued above $5,000 will be paid as an annuity unless the participant (and his or her spouse, if married) consents to a lump sum.
    • Death benefits are payable as a lump sum, or, for spousal beneficiaries valued at about $5,000, an annuity is an option.
    • To participate in the program, defined contribution plan administrators must complete a diligent search for missing participants by taking the search steps described in the Department of Labor (DOL) guidance (see #4).
    • If a defined contribution plan sponsor transfers benefits to the PBGC, all missing participant benefits under the plan must be transferred.
  3. The PBGC issued final requirements for diligent searches to use in the case of plan terminations in 2018 and later. The search must be made within nine months of the final distribution filing (Form 501, Post-Distribution Certification).
    • For any distributee, regardless of the size of the benefit, a commercial locator service must be used. This means paying a commercial locator service to search for current information to locate the participant.
    • For a distributee whose normal retirement benefit is not more than $50 per month, the records search method should be used. This means completing all of the following steps to the extent reasonably feasible and affordable:
        – Search the records of the plan
        – Search the records of the plan’s contributing sponsor that is the most recent employer
        – Search the records of each retirement or welfare plan of the plan’s contributing sponsor
        – Contact each beneficiary of the distributee identified in the plan records
        – Use an internet search method such as a search engine, a network database or a social media website
  4. The DOL updated their guidance in 2014 because two of the mandatory locator options noted in the prior guidance are no longer available (the Social Security letter forwarding program stopped in May 2014, and the IRS letter forwarding program stopped in August 2012). The current DOL required steps for locating missing participants are:
    • Use certified mail
    • Check related  plan and employer records (such as a group health plan)
    • Check with the designated plan beneficiary
    • Use free electronic search tools (internet search engines, public record databases, obituaries and social media)

Potential Changes
Participants sometimes have a difficult time finding their retirement benefits due to company mergers and acquisitions, changes in plan administrators / trustees and forced cash-outs of small benefits where the pension plans automatically transfer benefits into an IRA.

Senators Elizabeth Warren (D-MA) and Steve Daines (R-MT) reintroduced the Retirement Savings Lost and Found Act on February 28, 2018. The original bill was introduced in 2016 and, if passed, would create an Office of Retirement Savings Lost and Found that would serve as a central location of retirement plan information to connect participants with their retirement benefits. This bill would use data already required to be reported to the Treasury Department and would require employers to report contact information for plan administrators and specific information on forced transfers and annuities purchased. While this would be a step in the right direction, the bill currently has a small chance of passing. Therefore, everyone must be vigilant about maintaining up-to-date records.

What’s Your Plan?
Pension plans are required to distribute an annual funding notice to each participant. This is a good time to update contact information for your pensioners and vested terminated participants. The best source for pensioners is the plan’s trustee, as the retiree or beneficiary is most likely to contact the payor with an address change or death notification. When you receive returned mail for a vested terminated participant, the use of a locator service is encouraged.

Pension plans are being frozen and terminated more frequently, so it’s never been more important to maintain accurate records. Managing your pension plan may seem overwhelming, but it doesn’t have to be. SilverStone Group offers full outsourcing services to assist you with every aspect of pension plan administration. Contact our experts today.

¹ “Does Job Hopping Help Or Hurt Your Career?” April 5, 2018. Robert Half website. Accessed on June 13, 2018 at http://rh-us.mediaroom.com/2018-04-05-Does-Job-Hopping-Help-Or-Hurt-Your-Career?utm_campaign=Press_Release&utm_medium=Link&utm_source=Press_Release

This article originally appeared in the 2018 | ISSUE TWO of the SilverLink magazine, under the title “The Search for Missing Participants” To receive a complimentary subscription to the SilverLink magazine, sign up here.

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