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No Stone Unturned: Locating Missing Participants under the PBGC’s Expanded Program for Terminated Plans

Summary

The PBGC’s missing participants program, which previously applied only to single-employer defined benefit pension plans, has been expanded to defined contribution plans, multiemployer defined benefit plans and small professional service defined benefit plans that end on or after January 1, 2018. The revised program provides a helpful alternative for plan administrators of terminating defined contribution plans, and also includes welcome clarifications that enhance the program available to defined benefit pension plans.

In Depth

The Pension Benefit Guarantee Corporation (PBGC) recently published a final rule expanding its program for managing the benefits of missing participants and beneficiaries in terminated retirement plans. Under the final rule, the PBGC’s missing participants program, which previously applied only to single-employer defined benefit pension plans, has been expanded to defined contribution plans, multiemployer defined benefit plans and small professional service defined benefit plans that end on or after January 1, 2018.

Upon the termination of a retirement plan, the plan administrator is required to distribute all benefits owed to plan participants and beneficiaries. However, this can be difficult in cases where the plan administrator is unable to locate certain individuals. To address this issue, the PBGC has long-maintained a missing participants program under which plan sponsors can transfer the benefits of missing participants and beneficiaries to the PBGC. Historically, however, this program has only been available to single-employer defined benefit pension plans.

Program Now Available to Defined Contribution Plans

Previously, if the plan administrator of a terminated defined contribution plan was unable to locate a participant, the plan administrator had only one real option for handling the participant’s plan benefit—transfer that benefit to an individual retirement account (IRA) for the participant. While a plan administrator could also theoretically choose to set up an interest-bearing account in the participant’s name or to escheat the funds to the state, the US Department of Labor (DOL) has suggested that such action should be taken only as a last resort. As a result, historically, the options available to defined contribution plan administrators dealing with missing participants have been somewhat limited.

Now, however, plan administrators may choose to transfer the benefits of missing participants and beneficiaries to the PBGC. The following are the key features of this updated program:

  • There is a one-time per participant administrative fee (currently $35). The fee is not applicable to benefits of $250 or less, and there are no ongoing maintenance fees or distribution charges associated with the transferred benefits.
  • Benefits are credited with earnings at the federal mid-term interest rate, and there is no risk of investment loss.
  • Benefits valued at $5,000 or less will be paid in the form of a lump sum, and benefits valued above $5,000 will be paid in the form of an annuity unless the participant, and his or her spouse, if applicable, consents to a lump sum.
  • Death benefits are payable in the form of a lump sum or, for spousal beneficiaries with benefits valued above $5,000, as an optional annuity.
  • To participate in the program, defined contribution plan administrators must complete a diligent search for missing participants by taking the search steps described in DOL guidance.
  • If a defined contribution plan sponsor transfers benefits to the PBGC, all missing participant benefits under the plan must be transferred (the sponsor can’t transfer some missing participant benefits to the PBGC but not others).

The expanded program for defined contribution plans also includes a voluntary notification component whereby plan administrators who choose to transfer funds to IRAs rather than to the PBGC may notify the PBGC of the missing participant benefits transferred to IRAs. The information will be combined with information the PBGC gathers about other missing participants (including those whose benefits were transferred to the PBGC and those whose benefits were transferred to insurance companies following a defined benefit pension plan termination) to create a centralized directory of participants with missing benefits for whom the PBGC will conduct periodic active searches. There are no fees associated with the voluntary notification component of the program.

Program Now Required for Multiemployer Pension Plans and Available to Small Non-PBGC Insured Professional Service Pension Plans

The expanded PBGC missing participants program is now required for terminated multiemployer defined benefit pension plans and is available on a voluntary basis for small professional service defined benefit pension plans not insured by the PBGC.

Program Also Updated and Enhanced in Other Ways

The final rule also updates several components of the existing program for single employer defined benefit pension plans. For example, the final rule includes changes designed to streamline the calculation of benefit amounts. In addition, the rule also updates the definition of “missing participant” to include individuals who have been located, but either fail to return benefit paperwork or who have uncashed benefit checks. This means plan administrators can now transfer the benefits of those unresponsive participants to the PBGC.

More information about these updates and the expanded missing participants program can be found on the PBGC’s missing participants program website, including forms and instructions, information on transferring plan benefits, contact information and links to the applicable rules.

Conclusion

The revised program provides a helpful alternative for plan administrators of terminating defined contribution plans, and also includes welcome clarifications that enhance the program available to defined benefit pension plans. However, because the program applies only to terminating plans, administrators of ongoing plans will need to continue to find other ways to address the problem of missing participants and beneficiaries.

© 2019 McDermott Will & Emery

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About this Author

Maggie McTigue, Employee Benefits Matters, McDermott Will Law Firm
Associate

Maggie McTigue is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  She focuses her practice on a variety of employee benefits matters relating to pension and 401(k) plans, health and welfare benefit plans, and executive compensation.

312-984-5812
Associate

Sarah Engle* is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. She focuses her practice on employee benefits matters.

Sarah counsels clients regarding a variety of employee benefits matters, including the design, drafting and operation of tax-qualified pension and profit sharing plans, health and welfare arrangements, and deferred compensation plans.

She is experienced advising clients on employee benefits design, implementation and transition matters arising in connection with corporate mergers and acquisitions, and advises companies on regulatory compliance with the Internal Revenue Code, ERISA, HIPAA, COBRA, PPACA, and related state and federal laws affecting employee benefit plans.

Sarah also has particular experience helping clients address compliance issues related to the administration of their employee benefit plans and has represented clients in matters before the Internal Revenue Service (IRS), Department of Labor (DOL) and Pension Benefit Guaranty Corporation (PBGC).

Sarah received her J.D. in 2010 from University of Pittsburgh School of Law, where she was articles editor for the University of Pittsburgh Law Review. She earned her B.S. in 2007 from Indiana State University.

Sarah is admitted to practice in Pennsylvania.

*Not admitted to practice in Illinois. Supervised by principals of the Firm who are admitted to the Illinois bar.

312 984 2024
Brian J. Tiemann, Labor Attorney, McDermott Law Firm
Partner

Brian J. Tiemann is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.   Brian focuses his practice on a variety of employee benefits matters related to pension plans, 401(k) plans, employee stock ownership plans (ESOPs), cafeteria and welfare plans, executive compensation and the implementation of benefit programs for domestic partners of employees.  He is a member of the Firm’s ESOP Affinity Group and has worked with clients to structure and maintain the qualified status of their ESOPs with the Internal Revenue...

312-984-3268