EB Flash: DOL Issues Fiduciary and Enforcement "Missing Participant" Guidance
On January 12, 2021, the Department of Labor (DOL) issued a suite of guidance addressing fiduciary and enforcement issues related to missing and nonresponsive retirement plan participants. The guidance includes "best practices" for retirement plan fiduciaries, compliance assistance to EBSA Regional Offices under the Terminated Vested Participants Project (so-called "missing participant" audits), and temporary enforcement relief for terminated defined contribution plans and abandoned individual account plans that use the PBGC Missing Participant Program. While this DOL "missing participant" guidance has been long-awaited, as sub-regulatory guidance, it is all subject to change without notice and comment.
Informal Guidance: Missing Participants – Best Practices for Pension Plans
DOL's "Missing Participants – Best Practices for Pension Plans" describes a range of best practices, based on DOL's experience in its nationwide compliance (audit) initiative, that retirement plan fiduciaries should consider to mitigate missing and nonresponsive participant issues. The best practices fall into the following four categories, each of which includes a list of detailed practices for review and consideration:
- Maintaining accurate census information for the plan's participant population;
- Implementing effective communication strategies;
- Missing participant searches; and
- Documenting procedures and actions.
DOL observes that plans with low numbers of missing and nonresponsive participants use best practices as part of their ongoing culture of fiduciary compliance, rather than sporadic, one-time fixes. However, DOL recognizes that not every practice it describes is appropriate for every plan, and that plan fiduciaries should consider which of the best practices could yield the best results in a cost effective manner for their plan's particular participant population (also taking into account the size of a participant's benefit and the cost of the search efforts).
DOL further stresses its view that ERISA's fiduciary obligations apply fully to missing participants whose accounts are treated as "conditionally forfeited" under Treasury Regulation § 1.411(a)-4(b)(6), which generally allows a plan to forfeit the benefit of a missing participant subject to reinstatement if the participant later comes forward. (This is one method used, for example, to deal with uncashed distribution checks.) Nonetheless, it is critical that employers maintain complete and accurate records with respect to these participants and the forfeited amounts.
In addition to best practices, DOL also lists the following "red flags" that may indicate potential problems with missing or nonresponsive participants:
- More than a small number of missing or nonresponsive participants;
- More than a small number of terminated vested participants who have reached normal retirement age but have not started receiving their pension benefits;
- Missing, inaccurate, or incomplete contact information, census data, or both (e.g., incorrect or out-of-date mail, email, and other contact information, partial social security numbers, missing birthdates, missing spousal information, or placeholder entries);
- Absence of sound policies and procedures for handling mail returned marked "return to sender," "wrong address," "addressee unknown," or otherwise, and undeliverable email; and
- Absence of sound policies and procedures for handling uncashed checks (as reflected for example, by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks, or failure to reclaim stale uncashed check funds in distribution accounts).
Compliance Assistance Release No. 2021-01 (Terminated Vested Participants Project Defined Benefit Pension Plans)
Compliance Assistance Release No. 2021-01 provides internal guidance that outlines the "general investigative approach" for DOL's Terminated Vested Participants Project (TVPP) for defined benefit pension plans and facilitates voluntary compliance by plan fiduciaries. The guidance is issued by DOL's Director of Enforcement to the Regional Directors and seeks to "ensure consistent investigative processes and case-closing practices" among each of the regions, nationwide, that undertake TVPP investigations.
The goals and objectives of the TVPP are to (1) ensure that plans maintain adequate records to determine the identity and address of participants and beneficiaries, and the amounts due to, and benefit commencement dates of, such individuals; (2) ensure that plans have procedures in place to advise terminated vested participants of their eligibility to apply for benefits as they near normal retirement age and the age they must start required minimum distributions; and (3) ensure that plans have the appropriate procedures in place to locate terminated participants and beneficiaries for whom such plans have incorrect or incomplete information.
Red flags and errors that TVPP investigations look for include defined benefit plans "that appear to have systemic issues with plan administration, particularly issues related to keeping track of terminated vested participants and beneficiaries, and timely distribution benefits;" inadequate procedures to identify and locate missing participants and beneficiaries, to contact terminated vested participants nearing normal retirement age or who are in pay status, or to handle uncashed checks; incomplete or incorrect census data; and communications that insufficiently explain the participant's right to benefits.
The TVPP's objective is to help plans find as many affected participants and beneficiaries as possible and, if errors are found, to "help the plan fashion an appropriate remedy for each affected individual." DOL has been aggressive in pushing for correction and implementation of plan administration changes, and the new compliance assistance attempts to bring uniformity to its enforcement efforts. If the plan or fiduciary provides the appropriate remedy and corrects the errors, "EBSA will generally recite those corrective steps, without citing the individual plan fiduciaries for specific violations of ERISA [Employee Retirement Income Security Act of 1974] when closing out a case."
Field Assistance Bulletin (FAB) 2021-01 (Temporary Enforcement Policy Regarding the Participation of Terminating Defined Contribution Plans in the PBGC Missing Participants Program)
FAB 2021-01 announces a temporary enforcement policy authorizing use of the Pension Benefit Guaranty Corporation (PBGC) Defined Contribution Missing Participants Program (PBGC Program) for missing or nonresponsive participants in terminating defined contribution plans.
The temporary enforcement policy bridges a gap between the PBGC Program and a DOL safe harbor, at § 2550.404a-3, for plan fiduciaries (including qualified termination administrators of abandoned plans) when making distributions from terminated defined contribution plans with respect to missing or nonresponsive participants. In general, and subject to certain conditions and notice requirements, the safe harbor allows fiduciaries to transfer the benefits of such participants to an IRA, certain bank accounts, or to a state unclaimed property fund. The PBGC Program provided yet another option beginning in 2018, and while DOL has expressed its intent to expand the safe harbor to include the PBGC Program, DOL has not yet done so.
Citing the economic disruption caused by the COVID-19 emergency, and the potential for large numbers of workers to lose contact with their employers and plans, DOL observes that "it is even more important in the wake of the pandemic to facilitate the transfer of missing participants' account balances to the PBGC upon the termination or abandonment of an individual account plan" to increase the likelihood that missing participants can locate and access their benefits.
Accordingly, FAB 2021-01 expressly provides that complying with the PBGC Program, rather than transferring the funds to an IRA, bank account, or state unclaimed property fund, as provided in the safe harbor regulation, is covered by the temporary enforcement policy. By the same token, to the extent any conflicts exist with the distribution options stated in FAB 2014-01, the new FAB 2021-01 controls. The forbearance applies only if the plan fiduciary acts in good faith and in compliance with the applicable guidance included in FAB 2021-01.
FAB 2021-01 does not provide relief to fiduciaries from searching for missing participants before the transfer. DOL will still pursue violations under section 404 and section 406 of ERISA if administrators fail to "diligently search for participants and beneficiaries prior to the transfer of their account balances to the PBGC" and maintain plan and employer records.
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