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