David J. Kupstas, FSA, EA, MSEA Chief Actuary
You may remember the hit CBS television series Without a Trace from the previous decade. At the beginning of each episode, the FBI would learn of a person who had “gone missing.” Anthony LaPaglia’s character, Jack Malone, and his team of FBI special agents would always find the missing person before the hourlong show was up (although in some cases after misfortune had befallen the object of the search).
Former participants in 401(k)s and other qualified retirement plans can go missing for a number of reasons. Addresses change. Office staff changes. Forms get lost. People forget (or never knew) they have benefits in their old company’s plan, particularly if they didn’t work there very long. What you’re occasionally left with is a missing persons case that even Jack Malone would have trouble solving.
The Department of Labor suggests the following steps in locating missing participants:
- Certified letter to last known address
- Check related plan records, such as group life or health plans
- Check with designated plan beneficiary
- Internet search
- Commercial locator service
- Credit reporting agency
In addition, the Pension Benefit Guaranty Corporation has a Missing Participants Program available for most defined benefit plans. Under this program, the missing person’s benefits are transferred to the PBGC which then takes on the responsibility of investing the money and ultimately locating the participant. The PBGC program is stringent in its requirement that a “diligent search” be conducted by the former employer. That is, you can't just dump the problem on the PBGC without doing some legwork yourself. A commercial locator service must be utilized if necessary.
In some cases, a missing participant’s benefits may be forfeited or escheated to the state. Generally, these should be options of last resort. The government’s view is that there are so many free tools available to help locate individuals, most missing participants should be findable with a modicum of effort. If not, there are usually requirements to dispose of the assets via an annuity purchase, IRA rollover, or the PBGC missing participant program. A forfeiture or escheat to the state should occur very rarely. Any benefits forfeited would have to be reinstated if the participant is eventually found.
Some plan sponsors in the past would try to pay a missing participant by withholding 100% of the distribution for federal tax, effectively shifting the burden of finding the participant to the IRS. The government has announced that this is not an acceptable option.
The IRS and Social Security used to have letter-forwarding services that could be used. Social Security discontinued its service this year, citing cost savings and the wide availability of social media as the reasons. The IRS discontinued its letter-forwarding service for this purpose in 2012.
In conclusion, the best way to avoid having missing retirement plan participants is by paying out terminated employees soon after their departure. If the plan doesn’t allow immediate payouts or the participant wants to keep his money in the plan, then be sure to keep close tabs on these former employees and track their address changes over the years. If all else fails, the steps above should enable you to locate a missing participant in most cases....or should we see if Anthony LaPaglia would be willing to star in a new show, Without a Trace: 401(k) Edition?