Abandoned Plans and Missing Participants: What IS One to Do?
Administering a plan can be challenging, even when the plan is actively run and all the participants are accounted for. But throw in a plan that’s abandoned or some participants who are missing, and it’s a lot more complicated. A recent ASPPA webcast addressed those unwelcome situations.
In the March 20 ASPPA webcast “Abandoned Plans and Dealing with Missing Participants,” Elizabeth Yanik, a compliance consultant with Unified Trust Company, discussed these situations and what can be done to address them.Abandoned Plans
A plan is considered to be abandoned, Yanik said, when:
1. there have been no contributions to or distributions from the plan for 12 consecutive months, or
2. other facts and circumstances exist, such as a filing by or against the plan sponsor for liquidation under Title 11 bankruptcy, or communications from participants and/or beneficiaries regarding distributions, and
3. after reasonable efforts to locate the plan sponsor, a qualified termination administrator (QTA) determines that the sponsor:
- is unable to maintain the plan.
Factors that can result in a plan being considered abandoned include:
- mergers and acquisitions not being handled appropriately;
- death of a sole proprietor/owner.
For example, Yanik said, a company being sold may have a plan, but the sale agreement does not mention the plan, nor its disposition, and/or the buyer may not stipulate what it is going to happen with the plan. The result? It is left without a sponsor.
Yanik discussed the program that the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) developed to address abandoned plans. The program seeks to help make sure that retirement plan distributions are made to participants in a timely manner, reduce excessive and unnecessary fees and limit fiduciary liability. EBSA received 1,004 applications from QTAs under the program in federal fiscal year 2017, Yanik said; it closed 584 of them with approved terminations, and made almost $28 million in distributions available directly to participants.
By following the abandoned plan program, Yanik said, a QTA is deemed to satisfy ERISA Section 404(a) fiduciary duties and is not required to amend the plan under title I of ERISA. The steps a QTA is to follow include:
- attempt to contact the plan sponsor;
- embark on a process to wind up the plan; and
- send a final notice and a special terminal report to EBSA.
What exactly are they? The Pension Benefit Guaranty Corporation (PBGC) final regulations on missing participants define a participant as missing if one or more of three conditions exist:
1. the plan does not know with reasonable certainty the distributee’s location;
2. the distributee has not elected a form of distribution upon receipt of a notice; or
3. if under a cash-out or election, the distributee is paid out in a lump sum, but the check goes uncashed after:
- a cash-by date on the check that is at least 45 days after issuance; or
- the date on which the check becomes “stale.”
Complicating the matter, Yanik said, is that there is no consistent guidance from federal agencies and departments regarding missing participants and what has to be, and should be, done about them. The guidance “is in bits and pieces here and there,” she said. Not only that, the IRS and DOL in 2012 and 2014, respectively, eliminated their letter-forwarding programs that were helpful in finding missing participants. That “kind of leaves us on our own,” she said.
Still, Yanik pointed out, there is a fiduciary obligation to search for missing participants. And, she argued, there are advantages to an active plan having a procedure in place to handle missing participants; such a plan helps with:
- avoiding DOL civil penalties for failure to provide notices;
- reducing the plan sponsor’s per-participant fees;
- cleaning up the plan before it is terminated;
- avoiding uncashed checks; and
- avoiding penalties for RMD failures.
Since there is a duty to find missing participants but a dearth of consistent guidance on just exactly how to meet that responsibility, what are a plan, a plan sponsor and a service provider to do? Yanik offered some ideas on best practices:
- Follow the terms of the plan document.
- Use guidance that is available to develop a process and procedure for identifying, searching and handling missing participant accounts.
- Help clients adhere to those processes and procedures.
- Keep supporting documentation.
There is another option, Yanik added — enlisting assistance by outsourcing. “There are many outside providers that can help do this,” she noted.
And while federal agencies may offer discordant guidance and have suspended some helpful programs, there still is some help to be had from the government, Yanik said.
DOL distribution safe harbor. Under this safe harbor, Yanik notes, a balance can be rolled into an IRA or an inherited IRA for non-spouse beneficiaries. QTAs of accounts of less than $1,000 have two options if an IRA is not an option: (1) opening an interest-bearing account in the name of the missing participant or beneficiary; or (2) planning the assets into the unclaimed property fund of the state where the missing participant’s last known address is located. And even this can be outsourced, she noted, remarking that there are “a lot” of companies that specialize in IRA rollovers.
PBGC Missing Participant Program. The PBGC’s final regulations on missing participants are effective for the following plan terminations on or after Jan. 1, 2018:
- PBGC-insured single-employer plans;
- small professional services DB plans; and
- PBGC-insured multiemployer plans whose close-out is completed after 2017.
A search for a distributee must be made within nine months before making a filing with this program, even regarding participants just being sent as a “notifying” plan, Yanik told attendees. The PBGC’s final regulations also require the use of DOL search methods for each distributee whose location the plan does not know with reasonable certainty. And if a participant is deceased and there is no known beneficiary to search for, the PBGC will still accept the account.
DC Plans Take Note
Concern about missing participants is not the sole province of pension plans, Yanik contends. She noted that the DOL’s Philadelphia office conducted a program to find them, and recovered more than $326 million in benefits payable to terminated vested pension plan participants. Now that program has been implemented nationwide. “We should be heeding the warning on the DC side as well,” she said.
Yanik noted that the PBGC has a missing participant program for DC plans which currently is voluntary for terminating DC plans that the PBGC does not insure. This program can be used for such plans by:
- transferring the plan, which entails transferring a missing participant’s funds directly to the PBGC for it to pay out after they are found; or
- notifying the PBGC about the entity responsible for providing the benefit when the participant is found, in which case the PBGC will share that information with the participant once he or she is found.
Yanik’s March 20, 2018, ASPPA webcast, “Abandoned Plans and Dealing with Missing Participants,” is available on demand here; click here for information about upcoming ASPPA webcasts.