What If Your Pension Plan Participants Go Missing?

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New guidance demonstrates how pension plans can keep better track of their participants.

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The ability of millions of Americans to retire comfortably depends on pension plans keeping track of their hard-earned benefits. But in 2020 alone, U.S. Department of Labor investigations discovered that more than $1.4 billion in retirement benefits became detached from their rightful owners simply because employers lost touch with their former employees.

To address this problem and help employers reduce the chances of losing retirement plan participants, the Labor Department recently issued guidance that offers best practices for pension plans with missing plan participants.

The department’s recent recommendations are based on trends from well-run plans with low numbers of missing or nonresponsive plan participants. These plans have a strong culture of compliance and adopt practices to keep accurate records.

Employer-provided pension plans are governed by the Employee Retirement Income Security Act of 1974 (ERISA), which was established to provide for the economic security of American workers in retirement. ERISA regulates a broad range of employer-sponsored benefit plans, including traditional pension plans, 401-k type plans, and other benefits, including health insurance, vacation, or education benefits. The law imposes many requirements on these plans and their corresponding fiduciaries to ensure that benefit plans are fair, funded, and reliable.

ERISA requires that companies with more than 100 employees complete annual plan audits. For many years, Labor Department plan audits have discovered plans with many missing participants, even though no regulations actually require plans to do anything about missing participants. As a result, pension plans and their respective fiduciaries have long requested some direction from the government about how to keep track of participants and stay in compliance.

The Labor Department’s long-awaited guidance suggests that pension plans should adopt the following four best practices to ensure that pension benefits make their way to their rightful owners.

First, plans should maintain accurate census information. The guidance suggests multiple avenues to maintain accurate information, including regularly asking participants to update their contact information, flagging undeliverable mail and uncashed checks for follow-up, and auditing census information and correcting data errors. In addition, the guidance encourages fiduciaries to pay close attention to the transfer of plan information in case of a merger, acquisition, or a change in record keepers.

Second, plans should implement more effective communication strategies. The guidance encourages fiduciaries to offer both plain English and non-English assistance when appropriate. It suggests fiduciaries should encourage ongoing contact with participants through websites and toll-free numbers, and they should build steps into on-boarding and exit processing for new or retiring participants that require the participants to update and confirm contact information. For participants who quit their jobs before the plan changed names or sponsors, which may occur due to a merger or acquisition, communication from the plan should be marked with the name of the original plan or sponsor.

Third, plans should improve missing participant searches. The Labor Department suggests leveraging beneficiary and next-of-kin contact information to find the most recent contact information for the missing participant, or even reaching out to colleagues or other members of the same plan to attempt contact with missing retirees. The pension plan fiduciary may try cross-checking other employer plan documents, such as health care plan documents, for more recent contact information.

The guidance also suggests partnering with other agencies or companies, including commercial locator services, credit-reporting agencies, social media websites, USPS certified mail, or the Social Security death index to attempt to contact the participant or confirm if they are still living.

Finally, plans should document their procedures and actions. The Labor Department encourages plan fiduciaries to record all policies and procedures in writing. In addition, they should document key decisions and the steps they take to implement their policies to ensure consistency. For plans that use third-party recordkeepers, the plan fiduciaries should closely supervise the third party to ensure performance of agreed upon services and that the third party is accurately identifying and correcting any shortcomings in the plan’s recordkeeping and communication practices.

Although not legally binding, the Labor Department’s new guidance marks a step towards ensuring that more pension plans stay in better touch with their participants. Following these best practices may help safeguard plan assets so they are available and deliverable to their rightful owners upon their retirement.