Mortality Searches and Reunification Efforts for Missing Plan Participants Pays Off

July 12, 2023   |   Bill Berger, Heather Gabell

Whether a plan is protected under ERISA and is not likely to be subject to the unclaimed property laws of the states is a threshold question for unclaimed property compliance.  However, regardless of whether unclaimed funds will be ultimately reported to the state as unclaimed property, searching for missing plan participants and/or beneficiaries is a fiduciary duty for plan sponsors.   Successful reunification campaigns may also remove any escheat obligations that might have existed.

The Employee Retirement Income Security Act of 1974 (ERISA) requires that fiduciaries and plan sponsors ensure that plan participants receive their benefits in accordance with plan documents.  Further, ERISA Section 404(a) states that “consistent with their obligations of prudence and loyalty, plan fiduciaries must make reasonable efforts to locate missing participants or beneficiaries, so that they can implement directions on plan distributions from the participants or beneficiaries.” Participants can go “missing” if mail is returned as undeliverable or they no longer live at the address of record and the mail is being thrown out.  Both can lead to a participant being deemed as “unresponsive” or “missing” and the end result is that they do not respond to the plan sponsor’s communications or fail to cash a check or fully negotiate a distribution.  Plan sponsors and fiduciaries must be able to demonstrate compliance with ERISA’s fiduciary standards for all decisions related to locating missing participants or they are at risk of failing an audit or even losing their qualified plan status due to a breach of their responsibility.

In the Field Assistance Bulletin No. 2014-01, the Department of Labor (DOL), via the Employee Benefits Security Administration (EBSA), set forth required search steps for missing participants of terminating defined benefit plans and defined contribution plans.   At a minimum these include the use of certified mail, checking with related plan records, checking employer records, checking with designated plan beneficiaries, and utilizing search tools along with 3rd party databases.  Additionally, the fiduciary’s duty requires a plan sponsor to consider whether additional steps are appropriate and at what frequency they need to be performed.

In 2021, the DOL issued updates to their missing participant guidelines above along with a “compliance assistance release” at the same time (CAR No. 2021-01).   The CAR No. 2021-01 described what they would be looking for when conducting Terminated Vested Participants Project (TVPP) audits in an effort to facilitate voluntary compliance by plan fiduciaries.  Some of the “red flags” for investigators to identify are:

  • Systemic errors in plan recordkeeping and administration that create a risk of loss associated with the failure of a terminated vested participant or their beneficiary to enter pay status before death or the imposition of excise taxes on RMD amounts.
  • Inadequate procedures for identifying and locating missing participants and beneficiaries.
  • Inadequate procedures for contacting TVPs nearing normal retirement age to inform them of their right to commence payment of their benefits.
  • Inadequate procedures for contacting TVPs and the beneficiaries of deceased TVPs who are not in pay status at or near the date that they must commence RMDs to inform them of actions the plan will take and what they must do to enter pay status and avoid RMD excise taxes.
  • Inadequate procedures for addressing uncashed distribution checks.

It is suggested that if a plan sponsor or fiduciary is experiencing any of these it is indicative of a larger problem and a full audit may ensue.  The remedy is to use their updated guidelines that outline “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.  Included in the best practices or activities is for the need for missing participant searches.  These may consist of online searches, public records databases, obituaries and social media, commercial locator services, and attempting contact by other available means, including email, telephone and/or text.   For nonresponsive participants, methods include death searches, and if a death is confirmed, communicating with the designated plan beneficiaries. Documenting the activities around the search and other outreach methods is another important step for plan administrators to fulfill their fiduciary obligations and create an audit trail should an EBSA office ever come knocking at your door.

Many states have adopted a version of the Unclaimed Life Insurance Benefits Act, which requires life insurance companies to perform periodic searches of their policies, annuity contracts and retained asset accounts against the Death Master File (DMF), a national database of death records maintained by the Social Security Administration. If a match is found, the insurer must confirm death within 90 days.  Instituting a process that proactively and continuously performs mortality searches is beneficial to satisfy these obligations.  If an insured or beneficiary cannot be found, then the benefits escheat under the unclaimed property laws.

The DMF is just one tool that can assist in determining life status. Additional methods include searches of obituaries, cemetery records, genealogy sites, and county probate records.  In the unclaimed property realm, such searches fulfill statutory requirements and can ultimately preserve these funds from escheatment.

The obligation to confirm death is not unique to life insurers.  For some states, the death of an owner can be a trigger for escheatment and in some states can even accelerate dormancy periods for certain property types. A proactive search and regular reviews of life status of owners and beneficiaries can therefore also assist in preserving accounts from escheatment and maintaining compliance with the unclaimed property laws.

The DOL utilizes enforcement actions, or missing participant investigations as mentioned above, to ensure plan administrators fulfill their fiduciary responsibilities.  Similarly, states actively enforce their unclaimed property laws to ensure holder compliance using audits, or self-audit questionnaire, with the assistance of third-party auditor paid by the state on a contingency fee basis.  Having a robust process of searching for missing and lost participants, and for owners of unclaimed property that might be reported to the state and retaining such documentation to prevent or at least be able to properly defend such audits, is paramount.

MarketSphere’s Retirement Reunification Services (RSS) assists fiduciaries, plan sponsors and their intermediaries in identifying the population of uncashed checks and reuniting missing participants, or their beneficiaries with their funds.  We also assist in recovering any funds due to the Plan or its sponsoring organization and also aid in protecting you from a DOL audit.  Lastly, our team of experts are also leaders in the unclaimed property space and perform these functions to assist holders who would like to come into, or maintain, compliance with the unclaimed property laws as well.

MarketSphere has the answers to your questions. Contact us regarding any escheat compliance needs to speak with our subject matter experts who can take the uncertainty out of unclaimed property compliance, reduce the risk of non-compliance, and keep your organization focused on core business activities.

*Content contained in this article is considered accurate as of the publish date.

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