On January 12, 2021, the Department of Labor (“DOL”) issued guidance that is intended to help retirement plan fiduciaries meet their ERISA obligations to locate and distribute benefits to missing or nonresponsive participants.
The guidance was issued in three forms:
Best Practices for Retirement Plans
This document lists steps that a retirement plan fiduciary could follow to help reduce the incidence of missing participants, based on practices that the Employee Benefit Security Administration (“EBSA”) division of the DOL identified as effective at minimizing missing participants during its investigations. The best practices are grouped into four broad categories, with a number of specific practices listed under each category:
The document also lists a number of “red flags” that EBSA has identified as warnings or indicators of a problem with missing or nonresponsive participants. These include “more than a small number” of missing or nonresponsive participants; missing, inaccurate or incomplete contact information or census data (e.g., placeholder entries); and absence of policies and procedures for undeliverable mail and/or uncashed checks (e.g., a failure to reclaim stale uncashed check funds in distribution accounts).
- Maintaining accurate census information for the plan’s participant population. This could include, among other practices, regularly auditing census information and correcting data errors.
- Implementing effective communication strategies. This list includes, but is not limited to, building steps into the plan and employer onboarding and enrollment processes for new employees, and exit processes for separating or retiring employees, to confirm or update contact information.
- Conducting missing participant searches. The practices listed in this category include a number that are consistent with prior DOL and Internal Revenue Service (“IRS”) guidance (such as using free online search records and attempting contact via USPS certified mail) and some additional practices (such as using social media to locate individuals, registering missing participants on public and private registries, reaching out to colleagues, and/or publicizing a list of missing participants on the company’s intranet). It is important to note that some of the listed practices may raise privacy concerns that should be discussed and addressed prior to implementation.
- Documenting procedures and actions. This list includes establishing a written policy or procedure, documenting key decisions and steps taken to implement the policies, and, for a plan that uses a third-party administrator (“TPA”), working with the TPA to identify shortcomings and taking steps to ensure the TPA is providing agreed-upon services.
Compliance Assistance Release No. 2021-01
This internal memo addresses the practices of EBSA’s regional offices in conducting investigations pursuant to its Terminated Vested Participants Project (“TVPP”). The TVPP focuses on defined benefit plan procedures to identify and contact terminated participants with vested account balances. This encompasses a review of the adequacy of the plan’s procedures to search for missing participants. EBSA recovered around $1.5 billion in enforcement from TVPP during the 2020 fiscal year.
The memo notes certain indicators of systemic issues that may result in EBSA opening a TVPP investigation, such as reporting a large number of terminated vested participants entitled to future benefits on the Form 5500. It also outlines information that EBSA requests in a TVPP investigation, including but not limited to, internal procedures for communications with participants and beneficiaries and procedures for contacting and searching for missing or unresponsive participants. The memo also addresses errors that the investigators look for (such as inadequate procedures to address uncashed distribution checks). It notes that mergers, acquisitions, and company name changes present specific risks for terminated vested participants, such as failure to integrate census data or maintain adequate records.
Field Assistance Bulletin (“FAB”) 2021-01
The FAB establishes a temporary enforcement policy under which the DOL will not pursue ERISA violations against plan fiduciaries for terminated defined contribution plans that use the Pension Benefit Guaranty Corporation Missing Participant Program (the “PBGC Program”) for account balances payable to missing or nonresponsive participants. The PBGC Program has been in place for many years, but was recently expanded in 2017 to allow sponsors of a terminated defined contribution plan to transfer the account balances of missing participants when certain conditions are met.
To qualify for relief under the FAB, the plan fiduciary must act with a good faith, reasonable interpretation of the ERISA requirements, satisfy the requirements of the PBGC Program (such as the “diligent search” requirement), and follow the DOL’s regulations for distributions from terminated individual account plans. The FAB also discusses the payment of Program fees from plan assets when allowed under the terms of the plan and the rules for participant notices. It is important to note that the FAB provides only temporary guidance, until the DOL provides further guidance. It is also an enforcement policy, and it does not preclude the DOL from pursuing ERISA violations for failure to diligently search for missing participants prior to the transfer of account balances or failure to maintain plan records.
While the guidance provides insight into the DOL’s views on missing participants, it is not formal, legally binding guidance. Given the facts and circumstances standard for fiduciary compliance, and the lengthy list of best practices, the guidance may raise more questions than answers for plan fiduciaries. That said, it serves as an important reminder to periodically review missing participant practices and procedures, particularly in areas identified as red flags (e.g., when there is a merger or acquisition or if there are gaps in census data) and to confirm the plan has the appropriate related practices and procedures in place (e.g., stale check procedures).