United States: DOL Issues Guidance On Missing Participants In Terminated Plans

Austin K. Stack is an Associate in our Miami office.

The Guidance Focuses on How to Search for Missing Participants or Beneficiaries in Terminated Defined Contribution Plans and How to Distribute Account Balances


  • The Department of Labor (DOL) Field Assistance Bulletin (FAB) 2014-01 provides guidance on (1) how fiduciaries should go about searching for missing participants or beneficiaries in terminated defined contribution plans; and (2) how to properly distribute the account balances of missing participants so that the assets are no longer plan assets and the missing individual is no longer a participant under the plan.
  • The DOL identifies four required steps that a fiduciary must, at a minimum, follow when searching for a missing participant or beneficiary. If the participant is still missing after completing the four required steps, the fiduciary must then consider if additional search steps are appropriate based on factors such as the size of a participant's account balance and the cost of further search efforts.

The Department of Labor (DOL) Field Assistance Bulletin (FAB) 2014-01 provides guidance on:

  • how fiduciaries should go about searching for missing participants or beneficiaries in terminated defined contribution plans
  • how to properly distribute the account balances of missing participants so that the assets are no longer plan assets and the missing individual is no longer a participant under the plan

FAB 2014-01, which was released on Aug. 14, 2014, replaces Field Assistance Bulletin 2004-02.

Searching for Missing Participants or Beneficiaries: Four Required Steps

The DOL identifies four required steps that a fiduciary must, at a minimum, follow when searching for a missing participant. The required steps do not have to be followed in any particular order.

  1. The fiduciary must use certified mail when sending the notice of plan termination.
  2. The fiduciary must check related plan and employer records since these records may contain more current information. In fulfilling this step, the fiduciary must ask both the employer and any administrators of related plans to search their records for a more current address. If there are privacy concerns, the employer or other plan fiduciary should either contact or send a letter on behalf of the terminated plan to the missing participant or beneficiary, requesting the missing participant or beneficiary to contact the terminated plan's fiduciary.
  3. The fiduciary must try to identify and contact any individual that the missing participant designated as a beneficiary so that the fiduciary can request current contact information for the missing participant.
  4. The fiduciary must make reasonable use of free Internet search tools such as search engines, public record databases, obituaries and social media.

If the participant or beneficiary is still missing after completing the four required search steps, the fiduciary must then consider if additional search steps are appropriate. Factors that the fiduciary should consider include the size of a participant's account balance and the cost of further search efforts. Possible additional search steps include using commercial locator services, Internet search tools, credit reporting agencies, information brokers and investigation databases. The DOL notes that the additional steps may vary depending on the facts and circumstances of the situation, but the fiduciary may charge the missing participant's account(s) reasonable expenses for the efforts to find them.

Distributing Missing Participants' Accounts

Preferred Method and Safe Harbor

If the participant or beneficiary is still missing after completing the search steps, then the fiduciary must still distribute the account balance. The preferred distribution option is a direct rollover into an individual retirement plan (either an individual retirement account or an individual retirement annuity); this option is the most beneficial to the participant or beneficiary. The ERISA regulations provide a safe harbor1 for fiduciaries to satisfy their duties under Section 404(a) of ERISA in distributing the benefits, selecting the individual retirement plan provider and investing the distributed funds when doing an automatic rollover from a terminated individual account plan. The DOL believes that using the regulatory safe harbor is the best option.  

The safe harbor requires that a notice must be sent to the participant or beneficiary and that the participant or beneficiary failed to elect a form of distribution within 30 days after furnishing the notice. The ERISA regulations provide a model notice2 that can be used, but the model notice is not mandatory. The notice must contain all of the following information:

  • the name of the plan
  • a statement of the account balance and on which date that amount was calculated, and if applicable, a statement that the amount may be more or less than stated depending on investments and costs
  • a description of the distribution options available under the plan and a request for the participant or beneficiary to elect a form of distribution
  • a statement explaining that if the participant or beneficiary fails to make an election within 30 days from receipt of the notice, the account balance will be distributed to an individual retirement plan
  • a statement explaining what fees, if any, will be paid from the individual retirement plan, if known at the time of the notice
  • the name, address and phone number of the individual retirement plan provider, if known at the time of notice
  • the name, address and phone number of the plan administrator from whom the participant or beneficiary can receive additional information about the termination

The safe harbor also generally requires that:

  • the account balance be distributed to an individual retirement plan
  • the fiduciary enters into a written agreement with the transferee specifying that:
  • the funds will be invested in an investment product that is offered by a state or federally regulated financial institution
  • the investment product is designed to preserve principal and provide a reasonable rate of return
  • all fees and expenses for the transferee plan do not exceed the fees and expenses charged by the provider of the plan or account for comparable plans or accounts
  • the participant or beneficiary on whose behalf the fiduciary makes the distribution shall have the right to enforce the terms of the agreement establishing the plan or account against the plan or account provider
  • selection of the transferee plan or account and the investment of the funds will not result in a prohibited transaction under Section 406 of ERISA (unless an exemption under Section 408(a) of ERISA applies)

Alternative Distribution Options

If a direct rollover into an individual retirement plan is not possible, or the fiduciary has a compelling reason based on the facts and circumstances not to use a direct rollover, the DOL provides two alternative options. The fiduciary may transfer the account balance to either a federally insured bank account or a state unclaimed property fund in the state of the participant's last known residence or work location. In choosing a bank account, the fiduciary must consider all available information about the bank and the interest rate. Transfers to a state unclaimed property fund must comply with state law requirements. In deciding between the two alternative options, the fiduciary should consider the features of each option such as bank fees, the interest rate and the availability of a searchable state database that could help participants find their retirement funds.

However, the two alternative options will likely involve significant adverse tax consequences, which may include the distribution being subject to income tax, mandatory income tax withholding, a premature distribution tax, and tax on interest accrual. Consequently, in most cases, the fiduciary would violate their duty of prudence and loyalty by choosing either of these options. Therefore, before distributing the account balance, the fiduciary must prudently conclude that one of these options is appropriate despite the likely adverse tax consequences.

Prohibited Option

An unacceptable option is to withhold 100 percent of the account balance for income taxes. Some fiduciaries have used this approach believing that such a withholding will serve as a credit against the missing participants' income tax liabilities. However, this is not necessarily true as the amount withheld may exceed a missing participants' tax liability and cause the participant not to receive the full benefit of their account balance.


1. 29 CFR 2550.404a-3

2. Id.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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