That blog title may seem odd. How could your Plan have missing participants? The issue that really needs to be covered is ensuring all Plan participants or their beneficiaries receive the benefits they are entitled to. As the Plan Administrator of a 401(k) Plan, you have a fiduciary duty to the Plan to ensure that all transactions are conducted for the best interest of the Plan participants. This includes ensuring that all participants receive the benefits that they are entitled to. Sounds simple right? It can actually become very difficult once an employee leaves your organization and moves on to other employment or other circumstances. If these individuals do not remove their 401(k) funds quickly after the relationship is severed, they can be difficult to locate especially if they move after termination. It is your responsibility to conduct good faith efforts to locate the “missing” participant or their beneficiaries (locating missing beneficiaries can be even more difficult) to ensure they receive their entitled benefits. What can you do to make this process run smoothly?
- When an employee terminates and they are participating in the Plan, include a discussion as part of the exit interview process regarding the disposition of their 401(k) account. Encourage them to roll over the balance to their new employer’s 401(k) plan, if possible.
- Depending on the verbiage included in your 401(k) Plan Document, you may be able to initiate a distribution to the participant or require them to roll over the account balance to an IRA account. Discuss this option with your Plan provider to better understand its applicability to your Plan.
- Ask current employees if they know how to reach employees that have left the organization. Often co-workers will keep in touch with each other for years after termination. They may be able to help find the “missing” participants. Ensure you have a procedure to follow-up on mail that is “returned to sender”, shows “wrong address” or “addressee unknown”. This indicates the participant no longer lives at that address and you have a missing participant.
- The Pension Benefit Guaranty Corporation (PBGC) maintains a database of “missing” participants. Although the PBGC covers defined benefit plans, they stated in December 2017, that the database information will be opened to allow missing 401(k) participant accounts to be added. For more specific information on this change please visit their website at: https://www.pbgc.gov/prac/missing-participants-program
The Department of Labor has some red flags they use to determine if a Plan has missing participants. One of the key items is if the plan shows a larger number of terminated vested participants on the Form 5500. They have begun sending notices to companies in this situation asking them to respond to their procedures to ensure the participants receive the funds.
It is the Plan’s obligation to ensure all participants receive their fully vested benefits. We suggest as the Plan Administrator, you review your procedures in this area to ensure you remain compliant.
Do you need an audit for your 401(k) Plan? Consider a specialized firm like Summit CPA Group. We can provide a quality benefits plan audit that is efficient and accurate. If you would like to discuss our audit process in more detail contact our office at (866) 497-9761. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete.