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. 

Leading practices to remember

The Department of Labor has highlighted four areas of best practices that plan sponsors can focus on as they strive to locate and resolve missing participants – and to avoid falling into a similar situation in the future. We have highlighted the key areas in bold below. 

The first is the importance of maintaining accurate census information for the plan’s participant population. That means contacting plan participants periodically to ensure their contact information is current. An important aspect of maintaining accurate contact information is having an online platform for the plan that allows participants to update their contact information and, in turn, the plan’s census information. With that in mind, plan sponsors also should regularly audit the census information and correct any errors.  

Implementing effective communication strategies is another area that plan sponsors should focus on to avoid having missing participants. Some of these best-practice strategies in this area are using simple language, offering non-English options, encouraging the use of websites and toll free numbers to update information, and addressing the importance of maintaining accurate information at employee onboarding – and during the employee exit/retirement process.  

When it comes to missing participant searches, it is recommended that plan sponsors check other available plan and employee records for correct contact information – not just for the participant, but also for their spouses, beneficiaries and next of kin. In other words, even though one particular plan may not have current contact information (creating a missing participant situation), it is possible that another plan, or other company records (such as payroll) could be updated and accurate.  

Other techniques related to this area are to use a commercial locator service (either an agency or an internet search tool) to locate individuals. Sometimes using the postal service to reach out to the participant’s last known mailing address can be a worthwhile endeavor. And of course email addresses, telephone numbers and social media are possible options, as well. Don’t limit yourself to mailing addresses. 

Finally, it is very important for plans to document procedures and actions. Not only is it critical to have the plan’s policies and procedures in clear, consistent writing to help past, current and future employees understand the situation. But also if the plan ever came under audit, the documented procedures and actions could prove to be significant.  

Having documented procedures and actions is even more critical for plans that use a third party to maintain records and contact information. 

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.