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PBGC Publishes Final Rule on Missing Participant Program, Joint Agency Roadmap on Due Diligence Regarding Missing Participants Emerges

On December 22, 2017, the Pension Benefit Guaranty Corporation (PBGC) published a final rule (the PBGC Rule) that expands its program to track and handle the benefits of missing retirement plan participants. The PBGC Rule was issued on the heels of recent guidance by the US Internal Revenue Service (IRS) on the appropriate steps for qualified plans to take to locate missing participants. Historically, the PBGC has operated a missing participant program under which single-employer plans subject to the PBGC’s jurisdiction under Title IV of the Employee Retirement Income Security Act of 1974, as amended (ERISA), could transfer to the PBGC the responsibility for the payment of benefits to missing plan participants. The PBGC Rule modifies the requirements governing the steps a plan fiduciary must undertake to search for missing participants (the diligent search) before the benefit may be transferred to the PBGC. The PBGC Rule also permits certain defined contribution plans and multiemployer defined benefit plans to participate in this program.

The PBGC Rule comes at a time when ERISA plan fiduciaries are facing increasing scrutiny related to their efforts to search and locate missing participants. For example, the US Department of Labor (DOL) has increased its investigation activities around this issue, and the IRS’s recently issued guidance also evidences the agency’s increased attention to this area.

One notable point about the PBGC Rule is that the PBGC consulted and coordinated with both the IRS and the DOL. Because of this coordination, the PBGC Rule shows consistency with recent IRS and DOL guidance on the minimum due diligence steps a plan fiduciary should take to search for missing participants. The three pieces of recent guidance are as follows:

  • The DOL Field Assistance Bulletin (FAB) 2014-01 on Fiduciary Duties and Missing Participants in Terminated Defined Contribution Plans, issued on August 14, 2014, which sets out for DOL investigators the steps (and distribution options) a plan administrator should undertake, in conjunction with a defined contribution plan termination, to search for missing participants.

  • The PBGC Rule, which, as noted above, identifies the requirements that govern the steps a plan fiduciary must undertake to search for missing participants before the plan can transfer the participants’ benefits to the PBGC. For a defined benefit plan, those steps have been modified to be “inspired by the guidelines” in FAB 2014-01. For a defined contribution plan, those steps are exactly tied to the requirements of any DOL guidance under Section 404 of ERISA, which at present is limited to FAB 2014-01.

  • The IRS October 19, 2017 Memorandum, which sets out for IRS examiners the minimum steps a plan can take to search for missing participants to avoid a qualification failure under Internal Revenue Code Section 401(a)(9) for failure to make a required minimum distribution. These IRS-endorsed steps are remarkably similar to the guidelines in FAB 2014-01.

Together, these three pieces of guidance can be viewed as a rough roadmap—endorsed by all three agencies—for plan fiduciaries trying to determine the appropriate due diligence steps to take with respect to missing participants.

The chart below identifies those steps. The resulting rough roadmap for plan fiduciaries is of course subject to the particular facts and circumstances.

 

DOL FAB 2014-01

Terminating Defined Contribution Plans

 

PBGC Rule

Defined Contribution Plans Covered by the PBGC Rule

PBGC Rule

Defined Benefit Plans Covered by the PBGC Rule

IRS October 19, 2017 Memorandum

Search Plan and Sponsor Records

Search related plan and employer records.

Follow DOL guidance, e.g., FAB 2014-01 (search related plan and employer records).

If monthly benefit is less than $50, search related plan and plan sponsor records.

Search related plan and plan sponsor records.

Search Free Public Records

Use free electronic search tools, including internet search engines, public record databases, obituaries, and social media.

Follow DOL guidance, e.g., FAB 2014-01 (use free electronic search tools, including internet search engines, public record databases, obituaries, and social media).

If monthly benefit is less than $50, use free electronic search tools, including internet search engines, public record databases, obituaries, and social media.

Search publicly available records or directories.

Certified Mailing

Use certified mail to attempt to contact the participant.

Follow DOL guidance, e.g., FAB 2014-01 (use certified mail to attempt to contact the participant).

N/A

Attempt to contact via US Postal Service certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers).

Beneficiary Searches

Check with designated plan beneficiary.

Follow DOL guidance, e.g., FAB 2014-01 (check with designated plan beneficiary).

If monthly benefit is less than $50, check with designated plan beneficiary.

N/A

For-Cost Record Sources

 

If the facts and circumstances warrant it, use search tools that cost money such as internet search tools, commercial locator services, credit reporting agencies, information brokers, and investigation databases.

Follow DOL guidance, e.g., FAB 2014-01 (if the facts and circumstances warrant it, use search tools that cost money such as internet search tools, commercial locator services, credit reporting agencies, information brokers, and investigation databases).

Use a commercial locator service.

Note that this is required for plans where the monthly benefit is more than $50; it is an alternative compliance step if the monthly benefit is less than $50.

Use any of the following methods:

  • Commercial locator service.

  • Credit reporting agency.

  • Proprietary internet search tool for locating individuals.

The preamble to the PBGC Rule indicates that both the DOL and the IRS expect to issue more guidance in this area in the future, subject to further coordination among the agencies. Consequently, plan fiduciaries should expect that these compliance requirements will continue to evolve.

Copyright © 2018 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

John G. Ferreira, Employee Benefits, Attorney, Morgan Lewis, Law firm
Partner

John G. Ferreira is a partner in Morgan Lewis's Employee Benefits and Executive Compensation Practice. Mr. Ferreira's practice involves every aspect of employee benefits, executive and equity compensation, and related areas. His clients include numerous global public companies, as well as several large financial institutions. Mr. Ferreira also counsels emerging information technology and life sciences companies, middle-market companies, private equity firms, nonprofit institutions, and individual executives.

412-560-3350
Partner

Amy Pocino Kelly is a partner in Morgan Lewis's Employee Benefits and Executive Compensation Practice. Ms. Kelly's practice focuses on all aspects of the firm's employee benefits practice. She advises plan sponsors of all types, including public and private companies, tax exempt organizations, and governmental employers regarding design, governance, operation, and compliance of qualified and non-qualified retirement plans, equity and executive compensation arrangements, and welfare benefit plans. Ms. Kelly also advises plan sponsors with respect to audit and correction matters before the Internal Revenue Service and the Department of Labor.

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Elizabeth S. Goldberg, Morgan Lewis, fiduciary responsibility provisions lawyer, prohibited transaction rules attorney
Associate

Elizabeth S. Goldberg advises clients on ERISA matters with a focus on fiduciary responsibility provisions, prohibited transaction rules and exemptions, and the management of employee benefit plan assets. She negotiates investment-related agreements on behalf of plans and financial services providers; designs, implements, and administers employee benefit plans; and counsels clients on US Department of Labor (DOL) investigations, plan fiduciary governance structures, ERISA reporting and disclosure obligations, ERISA litigation, and general benefit plan compliance considerations. Elizabeth’s...

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