Lost Participants and Your Obligations as a Plan Sponsor
In recent months, the topic of how to handle “lost participants” in retirement plans has gained increased attention at industry events and in several major industry publications. Few recordkeepers offer effective solutions for plans in this area, leaving plan sponsors with the obligation to navigate the matter themselves.
As background, a participant is considered “lost” when they are no longer able to receive required communications from the plan. As these participants tend to be terminated, plan officials typically learn about the possible lost status of a participant through mail that is returned to the employer’s address.
While some plans make an effort to find updated addresses for their lost participants, some do not. It is important for plan sponsors to know that many plan communications are required by law and may even carry monetary penalties if not provided to all plan participants within specified timelines.
Therefore, from a prudence and best practices standpoint, plans need to either find updated addresses for their lost participants or follow the guidance offered in Department of Labor Field Assistance Bulletin (FAB) 2014-01, so that they can safely discontinue sending required notices to participants that have been determined to be lost.
In an effort to assist our clients with the handling of their lost participants, Aldrich Wealth has developed the following model procedure (based on FAB 2014-01) which can be adopted by your plan:
With returned mail:
Step 1
Check records of other employer-sponsored plans (like health insurance) to see if the address is different:
- If yes, update address with the recordkeeper
- If no or already done, proceed to next step
Step 2
Identify primary or contingent beneficiary and send a letter to inquire if the address is different:
- If yes, update address with the recordkeeper
- If no, already done, or no beneficiary info on file, proceed to next step
Step 3
Use a search system (such as ApScreen) to see if the resulting address is different than what you have on file:
- If the resulting address is newer than what you have, update address with the recordkeeper
- If the resulting address is older than what you have, proceed to the next step
- If the resulting address is the same as what you have, proceed to the next step
Now, with lost participant list composed:
Step 4
Determine if the participant has a vested balance greater than $5,000:
If yes:
- Send a notice to the newest address using certified return receipt mail and retain return receipt in records
- Participant must stay in the plan but does not need to receive required communications going forward
If no, proceed to the next step.
Step 5
Determine if the participant has a vested balance between $1,000 and $5,000 (assuming your force pay threshold is the statutory maximum of $5,000):
If yes:
- Send a notice to the newest address using certified return receipt mail, retain return receipt in records and note when then communication was sent
- Once certified mail is returned, direct your recordkeeper to force this money to a lost participant IRA
If no, proceed to the next step.
Step 6
Participant has a vested balance that is less than $1,000:
- Send a notice to the newest address using certified return receipt mail, retain return receipt in records and note when then communication was sent.
- Once certified mail is returned, direct your recordkeeper to force this money out to a lost participant IRA (some recordkeepers will not offer this option for balances under $1,000 so you may need to work with a third-party provider such as PenChecks).
- When providing instructions to your recordkeeper about forcing out these lost participants, ensure that any outstanding checks payable to this group of lost participants are voided (checks may be outstanding as a result of prior force out efforts that were unsuccessful due to a bad address).
Final Considerations
- Fee policies can be drafted such that the costs associated with locating lost participants can be charged to that lost participant’s account.
- Many recordkeepers have (or are working towards) kicking off the force out process (if applicable) as soon as a termination date is received, which would significantly reduce the likelihood that a participant has time to become lost.
- It can also be helpful to a start a practice of exit interviews with terminating employees that require a current address, cell phone, email and even a secondary contact request (name and contact information for next of kin not residing with the employee). Generally, if you present this to terminating employees in such a way as “you may be entitled to benefits or future correspondence regarding benefits that may be payable to you,” they are likely to be responsive.
If you have any questions about lost participants in your plan, please reach out to your Aldrich Wealth Retirement Plan Consultant.
Meet the Author
Neil is a Certified Plan Fiduciary Advisor (CPFATM) and Accredited Investment Fiduciary (AIF®) who acts as the quarterback of a retirement plan. He guides employers through the overall plan management with the knowledge to do a deep dive into any aspect of plan operation. Neil connects the dots between internal staff and external service providers…
Neil's EXPERTISE
- Corporate retirement plans
- Recordkeeper selection
- Strategic planning and consultation
- One-to-one consulting participant meetings
- Certified Plan Fiduciary Advisor (CPFATM)
- Accredited Investment Fiduciary (AIF®)
