The DOL's New Missing Participant Guidance: Tips for Applying it in the Real World
By now, you’ve probably read about the Department of Labor's new guidance on locating missing retirement plan participants. And, as you’re probably already aware, missing participants (and beneficiaries)1 can be a real headache for plan sponsors – delaying both payment of required distributions (payments at normal retirement age, small balance cashouts, required minimum distributions, etc.) and distribution of required plan disclosures (summary annual reports, summaries of material modifications, etc.).
The DOL's guidance, issued January 12, 2021, includes a host of best practices (the “Best Practices”) plan sponsors and other fiduciaries can use to locate missing or nonresponsive participants. Unfortunately, not every Best Practice will be appropriate for every plan. In this article, we’ll help you sort through the Best Practices to determine which ones may work best for your plan.
Admitting You Have a Problem is the First Step Toward Fixing It
Plan sponsors can’t fix a problem they don’t know they have. Recognizing that, the DOL guidance describes certain “red flags” that may alert a plan sponsor to missing or nonresponsive participants. These include:
More than a few: (i) missing or nonresponsive participants, or (ii) terminated, vested participants who’ve reached normal retirement age but haven’t requested or started receiving benefits;
Missing, inaccurate, or incomplete contact information, census data, or both – this could include incorrect/out-of-date mailing addresses, email addresses, or other contact information; partial SSNs; missing birthdates; missing spousal information, etc.; and
Lack of reasonable policies and procedures for handling returned/undeliverable mail or uncashed checks (plus, the returned mail and uncashed checks are a sign of trouble themselves).
If any of these red flags apply to your plan, you may have a missing participant problem.
Help Us, DOL, You're Our Only Hope
Once you realize you have a missing participant problem, your first reaction may be to ignore it and hope the missing participants magically come forward when it's time to pay their benefits. Unfortunately, that's unlikely to occur – and could violate your fiduciary duties to the plan. The better approach is to consider using some (or all) of the Best Practices to address the issue.
The Best Practices can be broken into two categories:
Actions plan sponsors can take to prevent the missing/nonresponsive participant problem in the first place (i.e., maintaining accurate census information and implementing effective communication strategies); and
Actions plan sponsors can take to fix the problem if it occurs (i.e., methods for searching for missing participants).
Preventing Participants From Going Missing (or “How Can We Miss You if We Know Where You Are?”)
One Size Won’t Fit All (but May Fit Some). Because avoiding a missing participant problem by keeping track of participants on the front end is easier than tracking them down later, the Best Practices contain suggestions for keeping accurate census records. Whether these procedures will work for you will depend on your plan's size, the size of your HR staff, the platform you use for contacting participants (online/electronically vs. paper communications), etc.
For instance, the Best Practices suggest that plan fiduciaries periodically contact plan participants (both current and retired) to confirm or update their contact information. Such information might include home and business addresses, home and cell phone numbers, social media contact information, and emergency contacts. This is good advice, but may be difficult for plans with large numbers of current and former participants, or those with small HR staffs, to accomplish. Likewise, plans that contact participants electronically may have less difficulty with this practice than plans that communicate through paper notices.
Talk to Me – Constantly. All plan sponsors, however, must communicate with their participants. Including language in required notices, disclosures, and other communications may be an efficient way to remind recipients to provide their current contact information. Sponsors using online platforms could include a similar prompt on their site's landing page, ensuring that participants see it whenever they visit. Plan sponsors should have procedures in place for sharing any updated contact information they receive through these methods with the appropriate internal departments (HR, benefits, payroll) and recordkeepers.
The sponsor's message should be easy for participants to understand, using plain language, and quickly making clear what it's about. If changes in the sponsor's ownership (i.e., mergers and acquisitions) have resulted in changes to the name of the sponsor and/or the plan, both the new and old names should be referenced. Non-English assistance should always be offered whenever appropriate.
In addition, the process for updating their information should also be easy for participants to use. For example, providing a toll-free phone number and/or the HR department’s email address may facilitate the process. Likewise, participants should be permitted to update their contact information on the plan's website.
Plan sponsors might even go “old school” – contacting participants by “snail mail” to request any contact changes. If a plan sponsor takes this approach, it should make the letter look “enticing,” perhaps indicating the reason for the letter on the envelope itself. Sponsors might even consider providing participants with self-addressed, stamped envelopes to facilitate the return of any contact changes.
(Please Don’t) Return to Sender. The Best Practices stress the importance of flagging uncashed checks or undelivered mail for further follow-up. Establishing procedures for investigating such issues promptly (including coordinating with the plan's recordkeepers) may help the plan sponsor locate a participant before he or she can officially go missing.
Trust – but Verify. Some plan sponsors may delegate to responsibility for obtaining (and maintaining) current participant contact information to their recordkeeper. If you do so, be sure to monitor the recordkeeper's performance. Remember, you are ultimately responsible for distributing benefits to plan participants and for ensuring you have the correct contact information to do so.
Locating Missing Participants (or “Won’t You Come Home, Plan Participants, Won’t You Come Home?”)
The Best Practices reiterate many of the search tactics the DOL has suggested in the past, such as using free online search engines, public records and commercial databases, obituaries, and the Social Security Death Index to locate missing participants. Plan sponsors may also register missing participants on public and private pension registries (if those registries have privacy and cybersecurity protections).
In addition, the Best Practices advocate the review of plan and employer records and reaching out to designated beneficiaries (spouse/children) and next of kin/emergency contacts to obtain missing participants’ current contact information. Where privacy concerns exist, the Best Practices suggest asking the beneficiary/contact to forward a letter on to the participant. In that case, plan sponsors should take care not to reveal too much of the participant's personal information/potential benefits in the communication, in order to avoid “helpful” beneficiaries/contacts who may try to establish a false identity and claim the benefits for themselves.
These tried-and-true methods should work for most plans, though their ease of use may decrease as the number of missing participants increases. That said, the Best Practices also include methods for locating missing participants that may raise concerns for some plan sponsors.
Making a List and Checking It Twice. The Best Practices suggest plan sponsors contact former colleagues of missing participants as a way of locating the participants. A sponsor might, for instance, contact employees who worked in the same office as the missing participant to get a lead on his or her whereabouts.
The sponsor, the Best Practices note, could also publish a list of missing participants on the sponsor's intranet, email the list to active employees, or provide it in communications to retirees already receiving plan benefits. This effort might work if the list contained a relatively small number of missing participants that wouldn’t inundate employees and retirees with a flood of requests to provide addresses or other contact information for missing participants.
Even if a list of missing participants might help locate missing participants, some plan sponsors may have reservations about using this approach. Depending on the information included on the lists, it's possible this approach could increase the potential for identity theft. Likewise, it might endanger participants who have gone missing due to personal security/safety issues or those who may have other privacy concerns. Due to these risks, if a plan sponsor elects to use this Best Practice, it should be careful of the participant information it includes on the list, perhaps erring on the side of under-inclusion, even where that may make locating the missing participant more difficult.
Social (Media) Butterflies. The Best Practices suggest searching social media sites (e.g., Facebook, LinkedIn, Twitter, and Snapchat, to name a few) to track down missing participants. The efficiency of such searches will depend on how many missing participants the plan has and the staff available to surf the web to find them. Determining which “Mary Smith” from Chicago is the missing participant you’re looking for could prove to be a daunting and time-consuming task.
The Best Practices take the use of social media a bit further than just searches, though, suggesting that plan sponsors attempt to contact missing participants using social media. That raises several concerns, as there's no way to ensure the sponsor’s message will actually reach the intended missing participant.
First, the plan sponsor may inadvertently contact a person with the same or similar name as the missing participant (Mary Smith from Chicago says “hi”). That could delay contact with the actual participant. More worrying, though, the accidental recipient could be a bad actor who fraudulently attempts to collect the participant's benefits for him or herself. There's also the ever-present fear that a participant's social media could be hacked, and the message intercepted by another bad actor (unfortunately, they’re everywhere) looking for a quick score.
Finally, even if you do reach the right missing participant, the participant may not believe you’re contacting him or her on behalf of the Plan, thinking instead that the whole thing is some sort of scam. We’ve heard stories of missing participants who refuse to believe the calls and letters they’ve received from the plan sponsor are real, so it's not a great leap to expect participants will be reluctant to interact with whoever's sending them private messages on Facebook about their pension benefits.
Document, Document, Document
The DOL notes that the Best Practices will work … well… best, if they’re part of a plan sponsor’s ongoing culture of fiduciary compliance, rather than a one-time fix of a missing participant problem. Monitoring potential problems (undelivered mail, uncashed checks, gaps in the census) and ensuring that ongoing communications with plan participants help them understand the importance of keeping their contact information current (i.e., to receive their hard-earned retirement benefits) are as important to fiduciary compliance as the sponsor’s methods for searching for missing participants. Since not every Best Practice will be appropriate for every plan, sponsors should consider which Best Practices will yield the most cost-effective results for their particular participant populations.
Plan sponsors also should be sure to document the procedures and processes they use to maintain accurate census information and to communicate with participants (to prevent them from becoming missing participants), as well as the search methods used to locate those participants who drop off the sponsor's radar. Documentation will help ensure the plan’s procedures are executed consistently by both the plan sponsor and its recordkeepers. It will also serve as evidence that the plan sponsor took its obligation to locate missing participants seriously, should the Department of Labor ever come knocking.
1 For simplicity's sake, this article refers only to missing or nonresponsive participants. However, the discussion also applies to missing or nonresponsive beneficiaries.