Finding Former Plan Participants Who Leave 401(k) Funds Behind
If you’ve tried to locate employees who have left your company and their 401(k) funds behind, they don’t respond to your communication or may be deceased, what is your responsibility to them?
As a plan sponsor, your fiduciary role extends to all plan assets, including those of “missing” plan participants. These participants present a particular challenge as they near the required minimum distribution (RMD) age of 72. The Department of Labor (DOL) wants participants to receive their benefits and the IRS wants to tax the distribution.
DOL Highlights the Issue
The DOL is putting the spotlight on missing participants, which means, if your plan is audited, the DOL will take a close look at your policies and procedures for locating those participants. If you don’t have a process in place, now is the time to take care of that and be sure to document it, so you can be prepared should the DOL audit your plan. Your recordkeeper may already be doing this for you.
Limited Guidance So Far
The challenge you’ll face is that, so far, the DOL hasn’t provided much guidance on this issue in terms of ongoing plans. However, the guidance offered for terminated 401(k) plans may be helpful for ongoing plans too (See minimal steps below). The IRS has provided a little help as far as how to report and withhold from plan distributions for a recipient who has received but did not cash his or her check.
Legislation Proposed to Find Participants A bipartisan bill was introduced this summer that tasks the Treasury Department with building an online system to track accounts, so that, in essence, a worker can click a button and locate their previous employer-sponsored retirement accounts. The retirement services industry supports the measure.
Next Steps: Ways to Locate Participants
For now, here are minimal steps the DOL suggests you take to search for participants:
- Send a notice to the participant via certified mail
- Check employer and related plan records
- Send an inquiry to the designated beneficiary of the missing participant
- Use free internet search tools, such as public record databases
If unsuccessful, you can try additional ways, which may involve fees:
- Fee-based internet search services
- Commercial locator services
- Credit reporting agencies
- Information brokers
- Investigative services
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