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sponsor 401(k)s or other qualified plans, often finding themselves with former employees whose contact information is outdated, rendering them "missing participants" in benefits terminology.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.
When faced with unresponsive participants or suspected outdated contact details, employers should consider these fundamental steps:
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.
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.
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.
The most effective practice is establishing robust administrative procedures to minimize the occurrence of missing participants. This includes:
Even refining the style and design of plan communications can enhance participant recognition and engagement.
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.
If you have any questions about this content, or if you would like more information please contact Jeff Wilkie, Principal of the HoganTaylor Talent practice. More information is also available on the HoganTaylor Talent page of this website.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.