'Missing' Inaction

While it’s hardly a new topic, the subject of missing participants is much in the news today – and arguably a growing concern for plan sponsors, particularly with the expansion of automatic enrollment.

Earlier this year the Government Accountability Office published a report – and some recommendations – on the subject of (re)connecting participants with their “lost” account balances. That report noted that from 2004 through 2013, more than 25 million participants in workplace plans separated from an employer and left at least one retirement account behind, “despite efforts of sponsors and regulators to help participants manage their accounts.” The report acknowledged that there are costs involved in searching for these “lost” participants, going on to note that there are no standard practices for the frequency or method of conducting searches.

Once upon a time the IRS provided letter-forwarding services to help locate missing plan participants, but with the Aug. 31, 2012, release of Revenue Procedure 2012-35, the IRS stopped this letter forwarding program. Moreover, while the Labor Department has provided guidance to plan sponsors of terminated DC plans about locating missing participants and unclaimed accounts, they have yet to do so regarding ongoing plans.

That said, the GAO reported that they had been informed by DOL officials that they are conducting investigations of steps taken by ongoing plans to find missing participants under their authority to oversee compliance with ERISA’s fiduciary requirement that plans be administered for the exclusive purpose of providing benefits.¹

In fact, the Labor Department’s Employee Benefit Security Administration’s Chicago Regional office adopted a “missing participant” regional initiative in fiscal year 2017, and – working with the PBGC, has reportedly recovered nearly $6.3 million for 133 participants, according to Bloomberg Businessweek.

More recently Sens. Elizabeth Warren (D-MA) and Steve Daines (R-MT) reintroduced the bipartisan Retirement Savings Lost and Found Act, noting that many Americans leave their jobs each year without giving their employers directions with what to do with their retirement accounts – a trend the bill’s sponsors say has increased with the expansion of auto enrollment. The legislation calls for the creation of a national online lost and found for Americans’ retirement accounts – and claims to leverage data employers are already required to report to do so (though the devil may lie in the details). The legislation also purports to clarify the responsibilities employers and plan administrators have to connect former employees with their neglected accounts.

Indeed, in such matters, plan sponsors often feel trapped between the proverbial rock and the hard place – pressed hard on the one hand by regulators to locate these former participants (and potential beneficiaries) – on another by state agencies with an avid interest in the escheatment of those funds – and often squeezed by the growing costs not only of trying to locate these participants, but the costs of distributing a wide assortment of plan notices, not to mention the ongoing costs of maintaining these accounts in potential perpetuity.

Little wonder that among its recent recommendations, the GAO recommended that the Secretary of Labor “issue guidance on the obligations under the Employee Retirement Income Security Act of 1974 of sponsors of ongoing plans to prevent, search for, and pay costs associated with locating missing participants.”

Said another way, what’s “missing” is more than former participants – it’s some safe harbor guidance that would provide some comfort and structure to those trying to reasonably fulfill their duties as plan fiduciaries – an ongoing concern for plans² that are an ongoing concern.

- Nevin E. Adams, JD
 
Footnotes

1.  Speaking of missing participants, the headlines of late have focused on issues regarding defined benefit participants. Most notably perhaps, MetLife disclosed last year that it failed to locate some group annuity clients that had likely moved or changed jobs. Nor was this a recent problem – the issue, which the firm said involved some 13,500 pension clients, was attributed to a “faulty system” that the firm had been using for a quarter century – a system that assumed that if the firm was unsuccessful in contacting participants twice that the individual would never respond, and that therefore weren’t going to claim benefits. In fact, the Labor Department’s push for companies sponsoring pension plans to find missing participants cited above reportedly influenced MetLife’s decision to conduct the review. Enter Secretary of the Commonwealth William F. Galvin, who just announced that his office discovered “hundreds of Massachusetts retirees” who are owed pension payments by MetLife. Galvin noted that the regulator planned to look into what MetLife had done in the past to locate and pay the retirees. 

• He also said his office’s investigation has been expanded to look into other firms who provide  retirement payments, including Prudential, Transamerica, Principal Financial, and Mass Mutual. ↩

1. You may recall that last fall the Pension Benefit Guaranty Corporation (PBGC), the nation’s private pension plan insurer, announced the expansion of its Missing Participants Program beyond its historical focus on PBGC-insured single-employer plans as part of the standard termination process to cover defined contribution plans (e.g., 401(k) plans) and certain other defined benefit plans that end on or after Jan. 1, 2018. However, this only deals with terminating defined contribution plans. ↩