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