Thursday, September 18, 2014

The Search is On – What Plan Fiduciaries Need to Know to Locate Missing Participants

The Department of Labor (DOL) recently released Field Assistance Bulletin (FAB) 2014-01 entitled “Fiduciary Duties and Missing Participants in Terminated Defined Contribution Plans.” The FAB outlines the steps that plan fiduciaries must follow to meet their obligations under ERISA to locate missing participants and properly distribute participant account balances when a defined contribution plan has been terminated.

When a decision is made to terminate a defined contribution plan, the termination is not complete until all plan assets have been distributed, which, under the Internal Revenue Code, must be done as soon as administratively feasible after plan termination, generally within one year. Although the decision to terminate a plan is an employer function, the responsibility to distribute plan assets to participants is a fiduciary function.

Upon plan termination, notices are sent, generally via first class mail, to all participants notifying them of the plan termination and outlining what their options are. Invariably, some participants fail to respond or mail sent to their last known address is returned as undeliverable. The FAB details steps that plan fiduciaries must follow as well as some additional steps that plan fiduciaries must consider when a participant cannot be located. Finally, the FAB provides guidance on acceptable distribution options when a participant still cannot be located despite the best efforts of the fiduciary.

Search Efforts
When a participant cannot be located through routine delivery methods, plan fiduciaries must take the following steps:
  • Use certified mail. The DOL has provided a model notice that can be used for such mailings as part of a regulatory safe harbor, but its use is not required and other notices could satisfy the safe harbor.
  • Check related plan and employer records. While the defined contribution plan may not have the most current address information, it is possible that another plan of the employer, i.e., health insurance, may have more up-to-date information. As such, the fiduciary of the terminated plan must ask that the related plans’ records be searched.*
  • Check with designated plan beneficiaries. Plan fiduciaries must try to identify and contact any individual named as a beneficiary on the plan to try and obtain up-to-date contact information.*
  • Use free electronic search tools. Plan fiduciaries must make use of free Internet search tools to try and locate missing participants, including social media, various search engines, and public databases.
* When searching records of related plans or contacting beneficiaries, fiduciaries should be cognizant of any privacy issues which may exist (such as HIPAA).

The FAB makes clear that failure to take these steps is a breach of fiduciary duty. If all of the above steps are taken and the participant still cannot be located, additional steps must be considered. The decisions as to what specific additional steps to take will depend on the cost of the additional steps compared to the size of the account. However, the DOL makes clear that failure to consider the additional steps would be a fiduciary breach. Such steps might include credit reporting agencies, commercial locator services, or Internet searches that charge a fee.

As with all fiduciary duties, documentation of the steps taken to locate missing participants is essential.

Distribution Options
If all of the required search methods and, when appropriate, any additional search methods have been exhausted and the participant cannot be located, the plan fiduciary will have no choice but to distribute the account balance to complete the plan termination. The FAB sets forth some options for distributing the account.
  • The preferred distribution option is to establish an individual retirement account. An existing DOL safe harbor for selecting an IRA provider (see ERISA Regulation §2550.404a-3) may be used for this purpose.
  • If an IRA provider cannot be found to accept the distribution, two alternative options are available: 
    1. opening an interest-bearing federally insured bank account in the name of the missing participant or beneficiary, or 
    2. transferring the account to a state unclaimed property fund.
A fiduciary’s duties of prudence and loyalty to missing participants require them to undertake certain steps to locate those individuals. When the required steps fail to find the participant, a fiduciary must consider conducting additional steps based on a cost-benefit analysis, taking into account the cost of the additional steps and the account balance involved. Failure to carry out these steps results in a fiduciary breach with potential personal liability to the fiduciary.

The complete text of the Field Assistance Bulletin can be found here. If you have any questions about locating missing participants, or would like to begin talking to a dedicated retirement plan advisor, please get in touch by calling (855) 882-9177 or e-mail us at

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