This essential info EBA is lacking within the pension plans
So many extraordinary developments took place in the past year that some trends began to falter. One of them – the surge in migration from major US cities – can have a significant impact on sponsors and their plans.
According to U-Haul’s special migration analysis for 2020 after President Trump declared the pandemic a national emergency last March, more U-Haul trucks left than they arrived in the 30 most populous US cities in the following three months. In May 2020, one-way U-Haul truck rentals across the country increased 72% from the previous month and continued to grow month-to-month through August.
New York City and the San Francisco Bay Area saw the largest exodus in 2020. From March to December, U-Haul truck arrivals to the Big Apple were down 35% year-over-year, and arrivals in the Bay Area were down 31% year-over-year. over the year. The strongest peak values for U-Haul truck departures from both metropolitan areas in a year-on-year comparison were recorded in the three-month period between March and June 2020.
Read more: Employees are more confident about their retirement plans than expected
U-Haul’s analysis shows that, among other things, the pandemic caused many Americans to migrate from large cities to less crowded communities. For defined contribution plan sponsors, this means that many current or former employees may have moved in the past year. If so, they may not have contacted the plan recorders to update their mailing addresses.
The pandemic-induced exodus from large cities could mean that more participants are missing and more small, stranded accounts emerge in the future. Current addresses of terminated participants are not only much more difficult to determine using electronic search queries than sponsors and recorders believe, but in too many cases the addresses of current employees are no longer up-to-date.
This is often surprising, as sponsors and note takers are understandably likely to have more confidence in the accuracy of the information given by current employees. However, industrial research confirms this.
In the recent Retirement Clearinghouse study of the process and science of locating lost and missing participants, “Improving the Effectiveness of Electronic Search for Missing Participants,” 17 separate electronic search databases (e-search) were categorized into five general categories are tested against small control groups of the plan participants:
- High-Confidence Address Group: Consists of 997 participants whose addresses were rated as “good”.
- Low-trust address group: 998 participants whose addresses were classified as “bad” based on the e-mails returned.
- No address group: 241 participants without an address.
- Deceased group: 699 participants who are considered deceased due to the file status.
One of the significant results of our study was a much higher than expected incidence of obsolete addresses in the high-confidence address group – 33.2%, twice as much as we had expected based on previous research. In other words, many 401 (k) plans are likely to have significant “hidden” percentages of stale addresses that won’t raise red flags on regular searches.
Optimize electronic search
The US Department of Labor recently issued guidance on how retirement plan trustees can locate missing participants. This guide is helpful and well meant, and provides best practices for finding lost plan participants. However, it does not provide any definitive criteria for what a really careful search should mean.
Many plan sponsors use e-search to find missing participants. However, what type of search and database are the most accurate?
The above retirement clearinghouse study found that a search in a specific database of the credit services bureau works best. However, our research also found that a proprietary algorithm, when used in conjunction with multiple e-searches, can produce an optimized result that is more reliable than any individual e-search method.
Compared to the independent search in the credit bureau, this optimized search with the proprietary algorithm increased the reliability of the search results in all participant control groups. Advanced search made updated address search results 10% to 20% more reliable and life status search results 3.1% more reliable.
Whether or not the migration of Americans from major cities continues or not, plan sponsors should use robust missing attendee search techniques to ensure attendees’ addresses stay up to date – to meet their fiduciary duty and to ensure that hard earned benefits obtained from becoming participants of the past and present plan.