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

HIGHLIGHTS:

  • 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.

Footnotes

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions