EBSA clarifies obligations to lacking pension plan members

Pension plan trustees can obtain assistance in locating and distributing pension benefits to missing plan participants on Jan. 12 under the guidance of the Department of Labor’s Employee Benefits Security Administration (EBSA).

The new guidelines for compliance with the ERISA (Employee Retirement Income Security Act) consist of three parts:

  • Compliance Assistance Release 2021-01 describes the general investigative approach that will guide the enforcement actions of the EBSA regional offices as part of the “Terminated Free Movement Participants” project, who can support voluntary compliance efforts by Plan Trustees.

  • Field Assistance Bulletin 2021-01 authorizes trustees to terminate Type 401 (k) plans, the defined contribution program for missing participants of the Public Benefit Guarantee Corp. (PBGC) to track the balance of missing or unresponsive participants and to help those participants and find their benefits.

The new guidelines “reflect our ongoing commitment to assist trustees in planning to ensure their plan participants and beneficiaries receive the retirement benefits they have worked so hard for,” said Jeanne Klinefelter Wilson, Associate Labor Secretary, EBSA . “In fiscal 2020 alone, EBSA investigators helped missing and unresponsive attendees regain more than $ 1.4 billion in cash value,” she said.

EBSA’s previous efforts “resulted in investigations into trustees, plan administrators and third party administrators” for missing plan participants, Paul Friedman, an attorney with the Jackson Lewis law firm of White Plains, NY, found in 2019. The EBSA’s investigations were cumbersome due to the lack of guidance, “which requires a tremendous amount of work by the plan and forcing the plan to charge professional fees”.

The new guidelines are intended to clarify the EBSA’s investigative procedures and help plan sponsors to meet their obligations to former employees who are participants in the free movement of persons.

According to Mike Barry, senior consultant at the retirement planning consultancy on October 3, “DOL’s general goal is to correct errors in processes and provide remedial action for negatively affected participants rather than citing trustees for ERISA violations.”

Highlighted best practices

There are several “red flags” listed in EBSA’s Best Practices guides indicating that a plan may have an issue with missing or unresponsive participants, such as:

  • More than a small number of former vested workers who have reached normal retirement age have not yet started receiving their pension benefits.
  • A review of the participant records reveals missing, inaccurate or incomplete contact information for former employees who are free movement participants. This includes incorrect or outdated e-mails, e-mails and other contact information, sometimes social security numbers, missing dates of birth and missing information about spouses.

Plan sponsors should also seek out the following red flags and take action to correct them:

  • The lack of solid policies and procedures for dealing with returned emails labeled “Return to Sender,” “Wrong Address,” or “Addressee Unknown,” and undeliverable emails.
  • The lack of solid policies and procedures for dealing with un cashed checks, indicated by the lack of an accounting journal or similar record of un cashed checks, a significant number of obsolete un cashed checks (which typically were not cashed within six months and the banks therefore possibly declining to honor) or failure to reclaim obsolete, unredeemed check funds in distribution accounts.

“While the plan may not have up-to-date contact information, it is possible that the employer’s payroll or records kept by another employer’s plan, such as a group health plan, may be more up-to-date,” advised EBSA. “It may also be helpful to check with the designated beneficiaries of the plan (e.g. spouse, children) and the employee’s emergency contacts (in the employer’s records) for updated contact information.” If there are privacy concerns, ask the designated beneficiary or emergency contact to forward a letter to the missing attendee.

Another tip is to use free online search engines, public record databases (such as licenses, mortgages, and property taxes), obituaries, and social media to find people.

Obligations to supervise employers

“Although Plan Trustees can delegate record keeping, communication with attendees, and finding missing attendees to third-party administrators, Plan Trustees must ensure that the delegate has sound procedures in place and is following them,” advised Kimberly S. Couch , Partner with Verrill law firm in Portland, Maine. “Plan trustees are ultimately responsible for ensuring that benefits under the pension plan are paid out correctly and on time.”

“Using the PBGC program for missing participants does not relieve Plan Trustees [for terminating 401(k) plans] of the duty to carefully search for missing participants and beneficiaries before distributing assets, “advised the Proskauer law firm.

According to Barry, sponsors typically interact with the DOL if there are problems with missing participants as part of an audit. “Obviously, showing that a sponsor took DOL’s suggestions seriously, such as describing best practices, will help in the review process,” he said. “But sponsors may find some of DOL’s suggestions impractical or may have developed more effective methods of tracking participants.”

Previous IRS Guide to Missing Participants

In October 2017, the IRS published its own administrative enforcement guidelines for missing participants in retirement plans.

To avoid being challenged by IRS auditors against a defined contribution plan because a Required Minimum Distribution (RMD) has not been made to a participant (which must now start at the age of 72, from the age of 70 1/2 when the Guidelines issued), plan trustees must be able to demonstrate that they have taken the following three steps, the IRS said:

  • Searched plan and associated plan, sponsor and publicly available records or directories for alternative contact information.
  • Methods used such as using a commercial location service or credit bureau, or using a proprietary Internet search tool to locate people.
  • Attempted contact through US Postal Service certified mail to the last known mailing address and through appropriate means of addressing or contact information (including email addresses and telephone numbers).

If a plan fails to complete these steps, IRS auditors can appeal the plan for violating RMD standards.

Related SHRM items:

Investigation of Missing EBSA Participants Triggered by Failure to Make Distributions, SHRM Online, June 2019

Track 401 (k) attendees so they don’t go missing, SHRM Online, April 2018

DOL is stepping up screening for missing participants, SHRM Online, October 2017

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