A lot of us have been paying attention to long-lost participant claims. Spurred by Social Security Administration notices of possible private retirement benefits (look here: http://www.dol.gov/ebsa/SSAPotentialPrivateRetirement/SSAPotentialPrivateRetirement.html for the DOL's explanation), claimants have been investigating whether they have benefits that haven't been paid and plans are dealing with trying to determine whether benefits are payable (and prove that they have been, even when records of payment have been lost or destroyed, as reported here: http://www.plansponsor.com/Tips_for_Fielding_Lost_Participant_Claims.aspx).
While the considerations are more flexible for an ongoing plan (as reflected by the ERISA Advisory Council's call for more specific guidance in the area, reported here: http://www.dol.gov/ebsa/publications/2013ACreport3.html), there has been specific guidance for terminated plans, which have a more immediate need to find the participants or come up with an alternative, so that they can complete the termination and liquidation of the plan.
Field Assistance Bulletin 2014-01 reflects an updating of the prior guidance. The updating was necessary to reflect that the prior guidance (FAB 2004-02) pointed plan fiduciaries to the IRS and SSA mail-forwarding services (which have been discontinued) and because the growth in the internet since 2004 has resulted in several low-cost methods for locating missing individuals. The new guidance also reflects recommendations made by the ERISA Advisory Council, although it does not follow the Council's call to cover non-terminating plans.
The guidance covers two topics--(1) how does a fiduciary discharge its duty to find a lost participant and (2) what can a fiduciary do with the account of a person who cannot be located:
- The fiduciary must act consistent with the duties of prudence and loyalty and "make reasonable efforts to locate missing participants." The "reasonable" standard will require that low or no-cost methods with a high likelihood of success MUST be undertaken. The guidance specifically says that all of the following should be tried--certified mail, checking other plan and employer records, attempting to reach persons named as beneficiaries and using free electronic search tools. More expensive approaches may be necessary where the account balances are large. (As with other fiduciary decisions, a record of the process used to make this decision should be made and the specific decision(s) should be reflected in it.) Note that the guidance permits a fiduciary to charge a participant's account for reasonable expenses incurred to locate the participant. Of course, the plan document must permit expenses to be charged to the plan, if they are being charged.
- Where the above steps do not result in the locating of the participant, the preferred method of distribution is a rollover to an individual retirement account or individual retirement annuity. If that's not available to the fiduciary, it can open a federally-insured interest-bearing bank account for the funds, or transfer them to a state unclaimed property account (both of which are taxable, which is why "in most cases, a fiduciary would violate ERISA['s] obligations of prudence and loyalty" by using one of the alternatives if a tax-free rollover were available). As with all things of a fiduciary nature, the fiduciary should consider the features of these two alternatives before selecting one over the other. The guidance also mentions one unacceptable option--100% income tax withholding (i.e., turning the money over to the IRS).
The new Field Assistance Bulletin will be helpful because it reflects current thinking in the area. Although it contains a few simple rules (always use certain search techniques, always use tax-free rollovers and never use 100% withholding), the bulk of the guidance hits the common themes--conduct fiduciary activities with prudence and loyalty, show how you did it and make a record of what you ultimately decided.