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Missing Participants and Fiduciary Responsibilities: A Risk for TPAs

The DOL is aggressively investigating the practices and procedures of plan sponsors with respect to locating missing participants and distributing benefits to those participants. In some cases, the DOL is asserting breaches of fiduciary duty for failure to perform regular searches for those missing and unresponsive participants. For an example, see the American Benefits Council letter to the DOL regarding statements by its investigators during investigations. While we disagree with some of those statements, it is important for plan sponsors to know that the DOL is taking demanding positions about fiduciary responsibilities for dealing with the issue of missing participants.

As a result, TPAs should communicate with their plan sponsor clients about the DOL position, who has the responsibility for performing the searches required for missing participants, and what are considered to be reasonable search methods—despite a lack of clear DOL guidance on the issue.

Even more importantly, TPAs need to be aware of the IRS “non-enforcement policy” concerning missing participants who are required to start receiving required minimum distributions. The IRS position is explained in an October 2017 Memorandum in which the IRS directed its auditors to not challenge a qualified plan for failure to make RMDs to missing participants – but only if certain conditions are satisfied. The IRS memorandum requires that fiduciaries perform at least three steps:

  1. Search related plan, company, and publicly available records for alternative contact information.

  2. Use one or more of these search methods: a commercial locater service; a credit reporting agency; or a proprietary internet search tool for locating participants.

  3. Attempt to contact the participants through the United States Postal Service (USPS) certified mail to the last known mailing address and attempt to contact the missing participants through appropriate means for any other address or contact information (including email addresses and telephone numbers).

If a plan takes those steps, the IRS will not attempt to disqualify the plan for failure to make RMDs. The failure to take those steps—and, therefore, the failure to obtain the relief afforded by the IRS guidance, will result in asserted plan disqualification and, ultimately, a sanction under CAP – the IRS’ Closing Agreement Program – in order to avoid disqualification.

More generally, TPAs and plan sponsors should also consider using the search methods described in the DOL guidance for terminated defined contribution plans (Field Assistance Bulletin 2014-01).

Moral of the Story

The Department of Labor (DOL) is aggressively investigating plan sponsors concerning their practices for locating missing participants and distributing their benefits. In our experience, most plan sponsors believe that their service providers—including third-party administrators (TPAs) and recordkeepers—are responsible for all compliance issues, including this one. To manage potential risk, TPAs should communicate with their plan sponsor clients about this issue, as well as the procedures the Internal Revenue Service has issued for Required Minimum Distributions (RMDs) for missing participants. TPAs should also educate their clients on their fiduciary responsibilities for locating missing participants.

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About this Author

Fred Reisch, Drinker Biddle Law Firm, Los Angeles, Labor and Employment Law Attorney
Partner

Fred Reish represents clients in fiduciary issues, prohibited transactions, tax-qualification and Department of Labor, Securities and Exchange Commission and FINRA examinations of retirement plans and IRA issues.

Fred works with both private and public sector entities and their plans and fiduciaries and represents plans, employers and fiduciaries before federal agencies such as the DOL and IRS. He consults with banks, trust companies, insurance companies and mutual fund management companies on 401(k) recordkeeping services, investment products and...

(310) 203-4047
Heather B. Abrigo, Attorney,  Los Angeles, DOL
Partner

Heather B. Abrigo has extensive experience in all aspects of employee benefits and especially in working alongside plan committees to fulfill their fiduciary duties. Her clients come to her for assistance with qualified and non-qualified retirement plans as well as health and welfare issues. Heather works with public sector employers and navigating their retirement plan issues as well as their retiree health plans. She assists with Department of Labor investigations and Internal Revenue Service audits. 

Her services include but are not limited to assisting plan sponsors in meeting their fiduciary responsibilities, reporting and disclosure matters, and drafting qualified, non-qualified and welfare benefit plan documents. Heather assists various service providers in the financial services sector with their service agreements and complying with disclosure requirements under ERISA and the Securities and Exchange Commission.

Bar Admissions

  • California

Education

  • Southwestern Law School, J.D., 2005
  • California State University, Northridge, B.A., 2000

Court Admissions

  • U.S. District Court, Central District of California
  • U.S. Tax Court
310-203-4054