Missing and Nonresponsive Participants

The Employee Retirement Income Security Act of 1974 (“ERISA”) includes a whole host of obligations that apply to plan fiduciaries. An individual may qualify as a plan fiduciary to the extent that the person (1) exercises any discretionary authority over the management of the plan or (2) exercises discretionary authority over the management or disposition of the plan assets. An individual may also qualify as a fiduciary if he or she renders investment advice regarding plan assets for a fee. Plan fiduciaries include trustees, plan administrators, and individuals that provide certain services to an ERISA plan.

A plan fiduciary must comply with series of duties imposed by ERISA. One of those duties is to ensure that plan participants receive their benefits at a time and in the manner described in the plan document.

Complex issues arise when a plan has missing or nonresponsive plan participants who are eligible to receive their vested benefits. Participants are considered “missing” when they cannot be located by the plan (e.g., when mail sent to them is returned as undeliverable). Participants are considered “nonresponsive” when it appears that address information is correct but the participant does not respond to the communications. Oftentimes, this becomes clear when a participant fails to cash a check issued to them for benefits. For ongoing plans, the plan may forfeit a missing or nonresponsive participant’s benefits under certain circumstances as long as that plan provides for a reinstatement of the participant’s benefits if a claim is later made. If a plan is terminating, however, this is not an option. In both circumstances, the plan fiduciary is responsible for making efforts to locate the participant before taking other available disposition options.

Practitioners have requested guidance on this issue from the U.S. Department of Labor (“DOL”) over the last several years. Prior to January 2021, the most significant guidance on this issue was a Federal Assistance Bulletin from 2014. That guidance described appropriate search methods that should be taken to locate missing participants in terminated defined contribution plans and outlined the options for distributing assets when the participant could not be located using reasonable methods of location.

In January 2021, the DOL issued additional guidance about missing and nonresponsive participants. That guidance indicates that the Employee Benefits Security Administration (“EBSA”) has implemented a nationwide initiative to assist retirement plans with addressing the increase in missing and nonresponsive participants. The EBSA aims to mitigate this issue by encouraging plans to maintain appropriate records, have regular communication with plan participants, and implement other “best practices.”

Those “best practices” appear in a document provided by the DOL dated January 12, 2021. In this document, the DOL provides a list of “red flags” that indicate a plan may have issues with missing or nonresponsive participants. The DOL lists the following characteristics that it views as red flags:

• more than a small number of missing or nonresponsive participants;
• more than a small number of terminated participants who have reached retirement age who are not receiving their benefits;
• missing, inaccurate, or incomplete contact information or census data for the plan and its participants;
• absence of policies and procedures for handling undeliverable mail (mail that is returned with a “return to sender” or “wrong address”); and
• absence of policies and procedures for handling uncashed checks.

To mitigate the risk of an increased number of missing or non-responsive participants, the DOL encourages plan fiduciaries to maintain accurate census information for the plan’s participant population, implement effective communication strategies, conduct a missing participant search, and document the procedures and actions taken to locate the missing participants.

The DOL notes in its guidance, however, that not every practice is appropriate for every plan. There are a variety of factors that should be considered when determining what the best practices for an individual plan should be. Those factors may be the participants’ account balance, the cost of specific search methods, and most effective methods used to locate such participants. The methods taken by the plan fiduciary may even differ based on each participant’s situation.

To avoid the issue of an increased number of missing or nonresponsive participants, it is important that plan administrators are committed to making plan records accurate and complete. Plan administrators should develop procedures to update participant information on a regular basis. Consider the red flags discussed above and develop practices to avoid these issues. Plan administrators should also consider developing a procedure for locating the missing and nonresponsive participants when there are missing participants.

Part 2 of this series will discuss the steps a plan must take to locate missing or nonresponsive participants and what options the plan has to distribute those assets if the participant is not located.

If you have any questions about the DOL guidance mentioned above or if you would like to discuss your current policies and procedures as it relates to missing participants and updating your participant census data, please contact one of the authors of this article.

• Amanda J. Dernovshek...517.371.8259...adernovshek@fosterswift.com
• Julie L. Hamlet...616.796.2515...jhamlet@fosterswift.com
• Mindi M. Johnson...616.726.2252...mjohnson@fosterswift.com