Especially upon plan termination, locating missing participants can be a major headache for plan sponsors, who have a fiduciary obligation to locate participants and distribute benefits under the terminating plan. In one development that may help in this regard, the Pension Benefit Guaranty Corporation (“PBGC”) issued final regulations that expand, revise and simplify its Missing Participant program. Most importantly, it now allows defined contribution plans (e.g., 401(k) and profit sharing plans) to participate on a voluntary basis, either by transferring the missing participant’s benefit to the PBGC or informing the PBGC of the missing distributee.
For terminating defined contribution plans, the PBGC considers a participant as “missing” if they fail to elect a method of distribution on close-out of the plan, the plan does not know with reasonable certainty the location of the participant, or the participant did not accept a lump sum payment of his or her benefit. The PBGC regulations provide that if a participant’s check remains uncashed by a “cash-by” date that is at least 45-days after the issuance of the check, the distribution is considered uncashed and the participant is considered missing.
A defined contribution plan may only represent that it does not have reasonable certainty about the location of a participant without a “diligent search.” The PBGC defines a “diligent search” as:
- Searching the records of the plan, related plans, and the plan sponsor;
- Searching public records using free electronic search tools;
- Using certified mail to contact the distributee;
- Checking for and with any designated beneficiaries; and
- If circumstances warrant (considering the size of the distribution), pay for the use of commercial locator services and/or credit reporting agencies, information brokers, and investigation databases.
Defined contribution plan sponsors looking to take advantage of the program must file an application with the PBGC within 90 days after completing all distributions to participants that are not otherwise missing, or one year after the plan’s termination date, whichever is later.
The PBGC charges a one-time $35 fee for each transferring missing participant, payable when benefit transfer amounts are paid to the PBGC. There is no fee for notifying the PBGC about missing participants.
The PBGC estimates that with these changes to its program, it will recover approximately $26 million in retirement assets that might otherwise be lost. This is both a win for employees who have otherwise been separated from their retirement assets, and for employers who can rely on an agency with a vast database of information on these missing participants at their disposal.