Locating Lost Benefit Plan Participants

To preserve assets for individual retirement purposes, the Department of Labor issued a bulletin in October 2004 revealing the fiduciary duties regarding "missing participants" in contribution plans.

Use of specified search methods is required and must take into account the size of the participant’s account balance and the expenses involved in the locating attempts. Such expenses can be charged to the participant’s account if reasonable in relation to the account balance.

Search Methods

Administrators do not have to use all of the required methods if one or more prove successful in locating the participant. These search methods include:

• Certified mail.
• Contact participant's designated beneficiary.
• Consult related plan records. Employers often have updated information in other plan records. In order to avoid privacy concerns, the fiduciary may ask the employer or plan administrator to forward a letter to a participant on behalf of the terminated plan.
• Use of a service that forwards letters. The Internal Revenue Service and the Social Security Administration both offer this kind of service.

A plan fiduciary may also need to use additional search options including:

• Internet search tools
• Commercial locator services such as www.EmployeeLocator.com which is known to be 98% accurate in locating current addresses and is a huge time saver, and
• Credit reporting agencies (CRAs)

If the administrator exhausts all of these search methods and remains unable to locate a missing participant, they will need to consider various distribution options in order to complete the plan termination. For example, a rollover into an individual retirement plan or annuity is the preferred method of distribution and must always be considered. This option preserves the assets by deferring a 20% income tax as well as a 10% tax for premature distributions.

If an IRA provider cannot be located that will accept a rollover distribution on behalf of a missing participant, there are other alternatives that incur income taxation as well as other penalties such as opening a federally insured bank account.

It is important to note that the problem of locating missing participants is heightened in terminated defined contribution plans because all affected participants become fully vested immediately.

In order to complete termination of such a plan, it becomes the administrator’s legal responsibility to quickly perform "due diligence" in locating any lost plan participants and the steps taken to implement a decision to terminate are governed by the fiduciary responsibility provisions of the Employee Income Retirement Security Act of 1974 (ERISA).