A version of this article was previously published in the March/April edition of Employee Benefit Plan Review.
On January 12, 2021, the Department of Labor (DOL) issued long-awaited guidance to assist employers and plan administrators in dealing with the issue of missing participants under retirement plans subject to ERISA. The guidance is comprised of three documents; a list of “best practices” for retirement plans, a description of the DOL’s Terminated Vested Participants Project for defined benefit plans, and a Temporary Enforcement Policy with respect to missing participants of terminating defined contribution plans.
The document, titled “Best Practices for Pension Plans,” lists the following “red flags” that suggest to the DOL that an employer may have a problem with missing participants:
According to the DOL, a common characteristic of compliant employers is a commitment to ensure that plan records are complete. Such employers do not rely on a one-time or sporadic fixes of plan records but instead foster a culture of consistent compliance through some or all of the following best practices:
Accurate census information
Effective communication strategies
Missing participant searches
Documenting procedures and actions
The DOL acknowledges that some of the best practices may not be appropriate for all employers.
The Terminated Vested Participants Project (TVPP) is a program designed to (i) determine whether a defined benefit plan is maintaining adequate records to locate eligible participants and timely pay benefits due under the plan, (ii) ensure that the plan is advising participants of their eligibility to apply for benefits as they near normal retirement age and the mandatory commencement of their benefits under the required minimum distribution (RMD) rules, and (iii) ensure the plan is searching for terminated participants and beneficiaries for whom it has insufficient contact information.
Compliance Assistance Release No. 2021-01 (Release) is intended to ensure consistent processes and case-closing practices by the Employee Benefit Security Administration (EBSA) in conducting investigations under the TVPP. The Release also provides valuable information to employers and plan fiduciaries regarding how plans are selected for TVPP investigations and how such an investigation will proceed.
The Release indicates that information on the Form 5500 may lead to a TVPP investigation. For example, if a plan reports a large number of retired or terminated vested participants who are entitled to future benefits, the EBSA may open a TVPP investigation. Alternatively, if an employer is facing bankruptcy or has undergone a merger or acquisition, the EBSA may open an investigation because of the increased risk that a loss of participant data may prevent participants and beneficiaries from receiving plan benefits. A TVPP investigation may also be opened as a result of an inquiry by a plan participants or beneficiary.
The EBSA will open a TVPP investigation by sending a letter to the employer or plan administrator. Once a TVPP investigation is opened, the EBSA will request the following documents, records, and information:
Additional documents and information may be requested depending on the circumstances.
The Release indicates that the EBSA will provide a reasonable opportunity for an employer or plan administrator to raise concerns about the costs associated with complying with an information request and will consider reasonable alternatives for providing the requested information. The EBSA will also grant reasonable requests for an extension of the due date for providing requested information. The EBSA will issue subpoenas to compel production of the requested information if necessary.
The investigation will focus on determining the possible existence of:
The Release identifies “red flags” discovered in investigations that are similar to the red flags listed above under “Best Practices.”
After reviewing requested documents and information, the EBSA will inform an employer and plan administrator of its findings. If there are systemic errors in plan records, the EBSA will help the plan locate as many missing participants and beneficiaries as possible and implement appropriate remedies for each affected participant and beneficiary. The EBSA will also request that the plan revise policies and procedures regarding missing participants. The EBSA will issue a voluntary compliance letter addressing potential ERISA violations and provide a period of time to address the violations. The Release notes that, absent substantial errors or widespread fiduciary breaches, the EBSA will not cite individual plan fiduciaries with ERISA violations.
DOL regulations set forth a safe harbor whereby plan fiduciaries of a terminating defined contribution plan are deemed to have met their fiduciary duties if benefits of a missing participant or beneficiary are rolled over to an individual retirement account or annuity. In certain circumstances, the safe harbor permits the transfer of such benefits to a bank account or state unclaimed property fund.
The Temporary Enforcement Policy states that, pending further guidance, the DOL will not assert violations under ERISA §404(a) against plan fiduciaries of a terminating defined contribution plan in connection with the transfer of the accounts of a missing participant or beneficiary to the PBGC Defined Contribution Missing Participants Program. The DOL notes that the Temporary Enforcement Policy does not preclude the DOL from pursuing violations under (i) ERISA Sections 404 or 406 for a failure to diligently search for participants and beneficiaries prior to the transfer of accounts to the PBGC, and (ii) ERISA Sections 107, 209 or 404 for failure to maintain plan and employer records. The DOL also notes that a plan fiduciary must continue to satisfy the notice requirements of the safe harbor with modifications to reflect the transfer of accounts to the PBGC.
The above documents issued by the DOL provide welcome guidance to employers and plan administrators in dealing with the difficult issue of missing participants and beneficiaries. Employers should review and revise plan policies and procedures regarding missing participants and beneficiaries in light of these pronouncements.
Lori Jones is the chair of Thompson Coburn’s Employee Benefits practice.
 29 CRF §2550.404a-3. Although not discussed in this article, the safe harbor and the temporary enforcement policy also apply to qualified termination administrators of abandoned defined contribution plans.
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