Employer Strategies for Managing Missing 401(k) Plan Participants

When employees transition from one job to another, financial advisors commonly advise them to roll over their 401(k) plans into a new employer's plan or an Individual Retirement Account (IRA). While many heed this counsel, some do not, leaving behind dormant accounts. This scenario is familiar to employers who sponsor 401(k)s or other qualified plans, often finding themselves with former employees whose contact information is outdated, rendering them "missing participants" in benefits terminology.

This predicament initially poses administrative inconveniences but can escalate into a significant issue, particularly when the time comes for distributions from these accounts. Here are some recommended best practices for employers facing the challenge of missing participants.

Getting Started: 

When faced with unresponsive participants or suspected outdated contact details, employers should consider these fundamental steps:

1. Certified Mail or Private Delivery Services: Utilize certified mail or similar tracked delivery services to attempt contact.
2. Review Employment Records: Thoroughly examine employment records and benefits plans for updated information.
3. Contact Designated Beneficiaries: Attempt to reach out to designated beneficiaries under the plans for potential information.
4. Use Electronic Tools: Leverage free electronic resources such as internet search engines, public record databases, and social media platforms.

Additional avenues include reaching out to colleagues, unions, or registering the individual's name on public or private pension registries. According to guidance from the U.S. Department of Labor, concerns regarding privacy can be mitigated if the retirement plan fiduciary seeks assistance from the missing participant's current employer, other plan fiduciaries, or beneficiaries to facilitate contact.

Escalating Efforts: 

If initial search attempts yield no results and the account balance justifies the expense, consider investing in professional search services. These may include fee-based internet search engines, commercial locator services, credit-reporting agencies, information brokers, investigation databases and other similar premium services. The cost incurred may potentially be charged against the account, provided it aligns with the plan's terms and ERISA guidelines.

Considering Alternatives: 

Plan documents may outline procedures for handling account balances of missing participants in the event search efforts prove futile. Adhering to written policies and procedures, and documenting all actions taken, helps ensure consistency and reduces the risk of legal liabilities. Some plans direct fiduciaries to allocate funds among remaining participants' accounts, with provisions for restoration if the missing individual resurfaces. IRS regulations permit such allocations as permissible forfeitures, with obligations to restore the missing individual's account balance if they are found later.

Preventing Future Incidents: 

The most effective practice is establishing robust administrative procedures to minimize the occurrence of missing participants. This includes:

• Maintaining Accurate Plan Census: Proactively updating and maintaining an accurate plan census.
• Reconfirming Contact Information: Periodically prompting participants and beneficiaries to verify and update their contact details.
• Regular Audits: Conducting regular audits of census data, particularly during business transactions or recordkeeper changes.

Even refining the style and design of plan communications can enhance participant recognition and engagement.

Addressing Challenges: 

While sponsoring a 401(k) plan offers numerous benefits, it comes with administrative challenges, including managing missing participants. Collaborating with benefits advisors can help navigate this issue effectively, while assessing the costs and financial implications of the plan.