The Pension Benefit Guarantee Corporation (the “PBGC”) recently issued a final rule that expands its Missing Participants Program (the “Program”) to include 401(k) and other tax-qualified defined contribution plans, multiemployer pension plans and small professional service employer plans that terminate on or after January 1, 2018. This is a welcome development for plan administrators and practitioners.
The problem of missing participants (which includes missing beneficiaries) has plagued the administrators of tax-qualified 401(k) and pension plans for years. It creates concerns both for plan qualification under the Internal Revenue Code (the “Code”) and fiduciary compliance under the Employee Retirement Income Security Act (“ERISA”).
The Pension Protection Act of 2006 added Section 4050 under which the PBGC established a program to hold retirement benefits for missing participants covered by terminated single-employer defined benefit plans subject to Title IV of ERISA (“DB Plans”). This initial Program was designed to help those participants find and receive terminated DB Plan benefits held for them by the PBGC.
In the meantime, to assist non-DB Plans, the Department of Labor (“DOL”) issued guidance for plan fiduciaries with respect to the disposition of the benefits of missing participants from terminated 401(k) plans in FAQ 2014-01.
More recently, the Internal Revenue Service (“IRS”) issued plan examination guidance identifying actions plan administrators should take to locate missing participants that, if taken, would not result in a plan qualification issue for failure to make required minimum distributions under Code Section 401(a)(9). For more information click here.
PBGC Expands Missing Participant Program
In response to the missing participant-related challenges faced by 401(k) and other non-DB plans, the PBGC has now made the Program available to these non-DB Plans in connection with a plan termination. While participation in the Program is mandatory for both single-employer and multiemployer plans covered by Title IV of ERISA, it is voluntary for 401(k) and other non-Title IV plans.
Generally, a participant is classified as “missing” under the Program if the plan does not know with reasonable certainty the location of the participant or the participant has not responded to a distribution notice or otherwise refuses to accept a lump sum distribution made in accordance with the terms of the plan. A distribution is considered not to have been accepted if the distribution check remains uncashed after a cash-by date. In the case of 401(k) plans, a participant may also be classified as “missing” if they have not elected a form of distribution in response to a distribution notice. This captures the fairly common situation where a participant fails to elect between directly rolling over their account balance to another plan or an IRA and receiving the account balance as a distribution.
Under the Program, a participating plan can (1) transfer a missing participant’s benefits to PBGC, in which case PBGC would provide the benefits to the missing participant once found; or (2) notify PBGC of the disposition of benefits for each missing participant, in which case PBGC would relay such information to a missing participant once found.
Participating plans must provide the PBGC with certain information with respect to the missing participants, including the benefit transfer amount (and any interest owed on this amount) or information about where the missing participant’s benefit is being held, diligent search documentation and other information, fees and certifications. The filing deadline for single employer plans is 30 days after the last distribution date and for all other plans it is the later of 90 days after the last distribution not subject to missing participants regulation or one year after the plan’s termination date.
Participating plans are required to pay a one-time administrative fee of $35 per missing participant when the benefit transfer amounts are paid to the PBGC. This fee is waived where the benefit transfer amount is $250 or less. There is no charge for notifying the PBGC of the disposition of benefits. The PBGC does not charge ongoing maintenance fees or distribution fees.
Anti-Cherry-Picking Policy for Non-Title IV Plans
Under the Program’s “anti-cherry-picking” rule, if a non-Title IV plan elects the transfer option, it must transfer the benefits of all its missing participants to the PBGC. As a result, if a 401(k) plan elects to use the Program, it will not rely on the guidance issued by the DOL in FAB 2014-01. This anti-cherry-picking rule prevents the selective use of the Program based on the amount in a missing participant’s account and the ability of that account to withstand fees charged by individual retirement account (“IRA”) providers. Title IV plans, in contrast, may decide to use the transfer option or notification option on a case-by-case basis.
Pension Search Directory
Information filed with the PBGC will be used to actively search for missing participants and maintain a centralized online directory through which individuals who may be owed retirement benefits can find out whether a benefit amount is being held for them either by the PBGC or another entity. As the number of participating plans increase over time, so will the PBGC’s missing participants database and consequently its effectiveness in connecting missing participants with their benefits.