The U.S. Department of Labor (DOL) has issued updated guidance on locating missing participants in a terminated defined contribution plan.  The guidance reflects the discontinuance of the IRS and SSA letter forwarding services and the proliferation of free internet search tools.  Field Assistance Bulletin (FAB) 2014-01 lays out specific steps that must be taken, additional steps that plan fiduciaries mustconsider taking, and acceptable distribution options when a participant still cannot be located.  It replaces FAB 2004-02.

DBR Note:  The FAB specifically refers to locating participants in connection with a defined contribution plan termination.  It does not address defined benefit plans or other distribution issues, but may provide useful guidance in such other situations. 

Search Efforts

While the decision to terminate a plan is an employer function, distributing benefits to the participants is a fiduciary obligation.  This includes finding participants who may be missing.  (The FAB notes that once a complete distribution of a participant’s account has been made, the individual ceases to be a participant and the distributed assets are no longer plan assets subject to fiduciary duties.)  When a participant cannot be located through routine delivery methods, such as first class mail or electronic notice (don’t forget that the electronic delivery rules must be satisfied), FAB 2014-01 indicates that the plan fiduciaries must take the following steps (in no particular order):

  • Send notices by certified mail;
  • Check related plan and employer records;
  • Check with the participant’s designated plan beneficiary;
  • Use free electronic search tools (e.g., internet searches, public record data bases, etc.).

The DOL considers the failure to take these steps to be a breach of fiduciary duty.  If all four required search methods are unsuccessful, fiduciaries must then consider whether other search methods are appropriate.  The DOL notes that the failure to consider additional steps is also a breach of fiduciary duty.  This will involve a cost-benefit analysis that takes into consideration the size of the participant’s account relative to the cost of the search method.  Other search options may include internet searches that charge a fee, commercial locator services, credit reporting agencies, information brokers, investigation services, and analogous services.  So long as the terms of the plan allow it, the cost for such additional searches can be charged to the participant’s account.

Note that no similar cost-benefit analysis is used for the four steps listed above.  Rather, all four steps must be exhausted before using alternative distribution options.

DBR Note:  Checking other employer records may seem obvious but is often overlooked.  A participant who hasn’t kept the plan administrator of the 401(k) plan informed of her current location may very well have made certain that she was still able to get other current benefits to which she is entitled.  But remember:  when checking with other plan or employer records, fiduciaries also need to take privacy rules into consideration, such as HIPAA.

Distribution Options

If a participant cannot be located after exhausting the four required search methods and, when appropriate, any additional methods, then the plan fiduciary must decide how to distribute the participant’s account.  The preferred method is to make a distribution to an individual retirement account (IRA) for the benefit of the missing participant in order to preserve beneficial tax treatment.  An existing DOL safe harbor for selecting an IRA provider (ERISA Regulation Section 2550.404a-3) may be used for this purpose.

If the plan sponsor cannot find an IRA provider to accept the distribution, or if there is a compelling reason why a distribution to a rollover IRA cannot be made, the plan fiduciary may consider establishing an interest-bearing bank account in the participant’s name or transferring the assets to a state unclaimed property fund.  In deciding between these two options, the plan fiduciary should consider the applicable facts and circumstances, including bank charges, interest rates and the process for searching the state’s unclaimed property fund.  The DOL made it clear that applying 100% income tax withholding to the distribution is not an acceptable option under any circumstances.


In the void left by the discontinuance of the IRS and SSA letter forwarding services and with the advent of numerous free internet search tools, it is important that plan fiduciaries understand what steps must be taken when distributing accounts for missing participants in connection with defined contribution plan terminations.

DBR Note: While other similar circumstances involving missing participants, such as un-cashed checks and required minimum distributions, are not addressed in the FAB, fiduciaries should consider updating their procedures in those contexts to reflect the guidance provided in the FAB.