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On January 12, 2021, the Department of Labor published three documents providing guidance with respect to the treatment of missing participants: (1) a “Best Practices for Pension Plans;” (2) a description of its audit procedures under its Terminated Vested Participants Project (TVPP); and (3) Field Assistance Bulletin (FAB) 2021-01, announcing a nonenforcement policy with respect to transfers from terminating defined contribution plans to the Pension Benefit Guaranty Corporation’s program for terminating DC plans.
Of the three documents, only FAB 2021-01 has any legal effect. The other two documents are useful mainly as descriptions of DOL’s views on these issues. In what follows, we provide a brief description of the three documents. Sponsors of plans that have “missing participant” issues will want to consult with counsel concerning the import of the new guidance and review it in detail.
Missing Participants – Best Practices for Pension Plans
DOL’s “best practices” document outlines its view of the “best practices that the fiduciaries of defined benefit and defined contribution plans, such as 401(k) plans, can follow to ensure that plan participants and beneficiaries receive promised benefits when they reach retirement age.” The document begins by identifying “red flags,” then discusses issues with respect to census/plan data, communications, missing participant search, and documentation.
Red flags
The document first identifies the following “red flags” indicating that a plan might have issues with missing participants:
A large number of missing/nonresponsive participants or terminated vested participants past retirement age that have not commenced benefit payment.
Problems with contact information or census data (e.g., missing or incomplete information).
Absence of “sound policies and procedures” for returned mail marked, e.g., “return to sender” or for handling and accounting for uncashed checks.
Best practices
The document then describes the following best practices:
Maintaining accurate census information
Contacting participants periodically to update contact information (including for beneficiaries).
Including contact update requests in plan communications.
Flagging undeliverable mail/email and uncashed checks for follow-up.
Maintaining/monitoring a web platform on which participants can update contact information and including a contact update prompt as part of the login procedure for plan websites.
Regularly auditing census information.
With respect to a change in record keepers or a business merger or acquisition, taking care that census data is transferred correctly.
Effective communication strategies
Using plain language and (where appropriate) offering non-English language assistance.
Making clear “up front” what a communication is about.
Encouraging use of websites/toll free numbers.
Confirming/updating contact information in onboarding/enrollment/exit processes and advising employees of the importance of keeping their contact information up to date.
Communicating information about account consolidation.
Where sponsor/plan names have changed, marking envelopes/correspondence with the original plan or sponsor name for affected participants and indicating that the communication concerns benefit rights.
Missing participant searches
Checking related plan/employer records for participant and beneficiary and next of kin/emergency contact information.
Checking with designated plan beneficiaries and emergency contacts.
Using free online search engines, public record databases, obituaries, and social media.
Using a commercial locator service, credit-reporting agency, or proprietary internet search tool.
Attempting contact through certified mail or private delivery service with similar tracking features.
Attempting contact via other available means (e.g., email addresses or telephone numbers).
Using death searches as a check.
Reaching out to the colleagues or, for union employees, the union’s local offices.
Registering individuals on public and private pension registries and publicizing the registry.
Documenting procedures and actions
Keeping written policies and procedures.
Documenting key decision/steps taken.
Ensuring third party record keepers are performing agreed upon services and working with the record keeper to address issues.
Compliance assistance release No. 2021-01 – terminated vested participants project – defined benefit pension plans
In order to “ensure consistent investigative processes and case-closing practices” related to its Terminated Vested Participants Project (TVPP), DOL released a memorandum describing these processes. Summarizing:
Targets of investigation: Focus is on plans with “systemic issues with plan administration,” especially tracking terminated vested participants (TVPs) and distributing benefits. Bankruptcies and mergers/acquisitions are also targeted, because they present increased risk.
Information requested: Plan document(s); participant census records; actuarial reports; procedures for communicating with TVPs; “information to determine whether the plan takes sufficient steps to address missing participant situations when they occur” (e.g., internal procedures for searching for missing participants); and third party contracts. DOL will send an opening letter and a follow up, and sponsors have an opportunity to raise concerns, e.g., about cost. If the requested documents are not produced, DOL will issue a subpoena compelling production.
Errors targeted: Systemic recordkeeping and administration errors that increase the risk that a TVP does not enter pay status before death or a required minimum distribution (RMD) violation. Inadequate procedures for: identifying and locating missing participants; contacting TVPs near normal retirement age including about RMD requirements; uncashed checks. DOL also looks for “red flags” (see above), e.g., flawed data, and for failure to follow certain “best practices” (see above), e.g., failure to follow up “return to sender” mail, to use plain English in communications, or to provide non-English assistance where appropriate. And, as noted, mergers, acquisitions, and company name changes are targeted because they often present risks with respect to data transfer.
How cases are closed: DOL’s aim is, generally, to correct errors in processes and provide remedies for participants negatively affected, rather than to cite fiduciaries for ERISA violations: “If the responsible plan fiduciaries provide appropriate remedies for affected individuals and correct any flaws in their recordkeeping, communication, search and other relevant policies, [DOL] will generally recite those corrective steps, without citing the individual plan fiduciaries for specific violations of ERISA when closing out a case.”
FAB 2021-01: temporary fiduciary relief for the transfer of benefits for “missing participants” in a terminating DC plan to PBGC
Current DOL regulations provide a fiduciary safe harbor for distributions from terminated or abandoned DC plans for “missing participants” (and participants who do not otherwise affirmatively elect a distribution) for rollovers to an IRA. In December 2017 the Pension Benefit Guaranty Corporation finalized a regulationpermitting the voluntary transfer of benefits for missing participants in terminating DC plans to PBGC, if certain conditions are met. The preamble to that PBGC regulation noted that DOL had said that it “intends to look into what changes are needed to its safe harbor regulation so that transfers to the PBGC by terminating [DC] plans would be eligible for relief under the safe harbor.” DOL has not yet, however, proposed any changes to its safe harbor.
FAB 2021-01 announces a temporary enforcement policy (“pending further guidance”) that DOL will not pursue ERISA section 404(a) (ERISA’s general fiduciary provision) violations with respect to transfers from terminating or abandoned DC plans to the PBGC program that are made in accordance with PBGC’s rules, provided the plan’s fiduciary (1) otherwise complies with DOL’s safe harbor rule (except that the notice to participants reflects the transfer to the PBGC, rather than, e.g., to an IRA) and (2) acts in accordance with a good faith, reasonable interpretation of ERISA’s fiduciary rules.
DOL may still pursue ERISA fiduciary violations for a failure to diligently search for participants prior to the transfer or violations of ERISA’s records retention, benefit payment, and general fiduciary requirements.
The flat fee that PBGC charges for the transfer of certain accounts may be paid from the account unless the plan’s terms prohibit it.
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Observations
As we noted at the top, of this guidance, only FAB 2021-01 has any legal effect (and that effect itself is limited).
Sponsors typically interact with DOL on these issues in the context of an audit. Obviously, demonstration that a sponsor has taken DOL’s suggestions, e.g., in its description of best practices, seriously will help in the audit process. But sponsors may find some of DOL’s suggestions impractical or may have developed more effective ways of tracking participants.
Finally, because of the risk of a missing participant audit, sponsors will want to review these issues with their counsel.