Retirement plans and missing participants: examining the issues, warning signs and solutions

It is common for people, particularly those early in their careers, to hop from job to job, or to move from home to home.  

In many cases, employees are enrolled in retirement plans that accumulate thousands of dollars during their tenure with a company. Yet when they leave a job, those retirement dollars often get lost in the shuffle, as it is common to change addresses and forget to update contact information with prior employers. Thus, their ability to one day receive their retirement funds takes a major hit. 

With this issue in mind, the Employee Benefits Security Administration (EBSA) has started to place a high priority on helping retirement plans locate and communicate with these missing participants.  

After all, these accounts are just sitting there dormant – and the money can be rather significant. And from the plan sponsors’ perspective, they are often paying fees on these accounts, or sometimes undergoing an audit because the number of missing participants is causing them to exceed the audit threshold. Not to mention that plan sponsors typically must pay out required minimum distributions when participants reach 72 years old and must disclose unpaid benefits to the public on their Form 5500. 

In short, missing participants present a potential hassle for plan sponsors, as well as obviously a potentially squandered financial opportunity for the missing participants themselves.  

Be aware of the red flags

With so much on the line for plan sponsors, it is certainly important to recognize the red flags that commonly surround missing participants. In fact, plan sponsors quite often do not realize the number of missing participants that they have, so these warning signs can be particularly helpful in those cases. 

The first warning sign is having more than a small number of missing or nonresponsive participants. Obviously any company can have one participant, or a few participants, who are difficult to track down. This is particularly true in industries that experience a high turnover rate. But more than a few is an early indicator that some (or many) of those participants might be missing.  

Additionally – and this only applies to pension plans, it can be a warning sign when a plan has more than a small number of vested participants who are not receiving benefits despite being at a normal retirement age.  

Problems with contact information, or census data, are another red flag. Disconnected phone numbers or mail that gets returned should raise eyebrows that a plan’s information is not up-to-date, which of course can be an indicator of missing participants. In turn, additional signs that missing participants may be a significant problem.