On January 12, 2021, the Department of Labor (DOL) issued a series of guidance for pension plan fiduciaries related to missing or nonresponsive participants, which can assist them in their review of their policies and procedures surrounding locating these participants and their beneficiaries and as related to uncashed checks.
Best Practices for Pension Plans is a compilation of best practices for fiduciaries of defined benefit and defined contribution plans to locate missing or nonresponsive participants. The DOL stresses the need to maintain updated contact information and to implement effective communication processes to communicate effectively and regularly with participants (made easier by flagging mail or email that is returned undelivered and for uncashed checks) and to document, implement, maintain, and follow policies and procedures around such efforts. The DOL notes that plan fiduciaries may consider the size of the benefit and the account balance and costs associated with search efforts, as the steps taken to locate missing or nonresponsive participants may vary depending on the plan and the participant.
Compliance Release No. 2021-20 consists of an internal memo to Employee Benefits Security Administration Regional Directors designed to ensure that investigations related to the Terminated Vested Participant Project (TVPP) are standardized. Investigations can arise when a large number of terminated vested participants are reported by a plan on a Form 5500, or when a plan sponsor faces bankruptcy or is involved in a merger or acquisition. The memo sets forth the types of documentation often requested by investigators, which includes plan documents, census records, and the plan sponsor’s policies and procedures related to the plan sponsor’s communication with missing or unresponsive participants and beneficiaries. Additionally, the memo highlights common errors and red flags that are identified and reviewed in an investigation, which often relate to administration or recordkeeping issues, or inadequate procedures linked to either identifying and locating missing participants or addressing uncashed checks.
Field Assistance Bulletin (FAB) 2021-01 sets forth a temporary enforcement policy for terminating defined contribution plans and applies to fiduciaries of such plans and to qualified termination administrators of abandoned plans as they relate to the Pension Benefit Guaranty Corporation’s (PBGC) Missing Participants Program. The Missing Participants Program was established to hold retirement benefits for missing participants and beneficiaries in most terminated defined contribution plans and to help participants and beneficiaries find and receive benefits. The DOL permits the transfer of such plans to the PBGC and will not pursue claims against fiduciaries of terminating defined contribution plans or qualified termination administrators of abandoned plans for transferring the funds to the PBGC provided that the fiduciary has followed the guidance (including a diligent search, providing notice, and acting in good faith in interpreting the law). The DOL encourages those who do not elect to transfer the balances of all or some of the missing participants to notify the PBGC of its decision. Other options also available include the fiduciary safe harbor where distributions of terminated plans are rolled over into an IRA or annuity or escheating the funds to state unclaimed property funds.
The DOL has previously issued guidance related to the efforts plan fiduciaries must undertake under the Employee Retirement Income Security Act (ERISA) to locate missing participants or beneficiaries in terminated defined contribution plans (FAB 2014-01), after which the plan fiduciary might opt to rollover the funds into an individual retirement plan or another qualified plan (the “preferred distribution option”), open an interest-bearing account in the name of the name of the missing participant or beneficiary, or transfer the balance to a state unclaimed property fund. While recognizing that ERISA preempts state unclaimed property laws with respect to ongoing plans, voluntary escheatment to the state to complete the plan termination process was found to be a reasonable option.
While the DOL neither opines on whether missing participants uncashed distribution checks in a terminating plan are plan assets protected by ERISA nor mandates that the benefit be transferred to state unclaimed property funds, the guidance provided for locating missing participants and the value of documenting policies and procedures around searches and communication with participants should resonate with holders of unclaimed property.
The rules surrounding the escheatment of retirement accounts are numerous, complex and nuanced. In addition to the guidance detailed above, the IRS has also issued rulings related to the federal income tax withholding requirement and reporting requirements imposed on holders that escheat payments from traditional IRAs (Revenue Ruling 2018-17, effective January 1, 2020) and qualified retirements plan assets (Revenue Ruling 2020-24, effective January 1, 2022) to state unclaimed property funds. Like the DOL, the IRS does not opine on whether escheatment is permissible under ERISA.
An unclaimed property advisor can help keep track of the many federal, state and regulatory requirements surrounding the reporting of retirement accounts as unclaimed property. We recommend that all holders regularly review and update their policies and procedures for updating contact information and regularly follow up on inactive accounts or unresponsive customers. As we discussed in previous posts, it pays to be proactive.
*Content contained in this article is considered accurate as of the publish date.
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