- New Guidance on Distributing Benefit Plan Account Balances of Participants Who Cannot Be Located
- October 14, 2004 | Author: Nancy Oliphant Ryan
- Law Firm: Pepper Hamilton LLP - Philadelphia Office
The U.S. Department of Labor (DOL) has, at long last, distributed guidance on a terminated plan's distribution of account balances of participants who cannot be located. Below is a summary of the highlights of the guidance. The full guidance is available as a Field Assistance Bulletin (FAB).
Locating Missing Participants; Required Steps
The FAB provides that a plan fiduciary must take each of the following steps to locate a missing participant before any distribution of his or her account balance is made:
- Use Certified Mail.
- Check Related Plan Records. The plan fiduciary must contact the employer and other plans, such as a health plan, to determine if they have a more current address. If issues of privacy preclude the employer or another plan administrator from disclosing that address, then the DC plan fiduciary must ask the employer or other plan administrator to contact or forward a letter on behalf of the terminated plan to the missing person.
- Check with the Designated Plan Beneficiary. If there are privacy concerns, again the plan fiduciary can request that the designated beneficiary contact the missing person on the plan's behalf or forward a letter on its behalf.
- Use the IRS or Social Security Administration Letter-Forwarding Service to locate the participants.
Locating Missing Participants; Additional Steps
If none of these methods is successful, then the following methods should also be considered by the plan fiduciary. If the expenses of locating the participant are being charged to the participant's account, however, these methods should only be used if the size of the applicable account balance merits incurring the costs of using such methods.
- Internet search tools
- Commercial locator services
- Credit reporting agencies.
Distribution Options for Unlocated Participants
- IRAs. The Department of Labor recognizes that, despite a plan fiduciary's use of the search methods described above, plan fiduciaries may be unable to locate some participants. If that situation arises, the preferred method for distribution is a trust- to-trust transfer to an IRA. A plan fiduciary may rely on the newly finalized safe harbor regulations concerning mandatory rollover distributions to an IRA when selecting IRA providers and initial investments for such distributions.
- Bank Account or Escheat to State. If the plan fiduciary cannot locate an IRA provider that is willing to accept a rollover of the missing participant's account, then the fiduciary may consider either (i) establishing an interest-bearing federally insured bank account in the name of the participant, or (ii) escheating the account balance to the state of the participant's last known residence or work location. In the FAB, the DOL acknowledges that it has concluded in the past, in the context of ongoing plans, that state escheat statutes that compel the escheating of terminated participant accounts would be preempted by ERISA. However, here the DOL states that it does not believe the principles governing that conclusion prevent a plan fiduciary from voluntarily deciding to escheat missing participants' account balances under a state's unclaimed property statute in order to complete the plan termination process.
- No 100 Percent Withholding. Note that the FAB provides that plan fiduciaries should not use 100 percent withholding as a method of distribution of the accounts of missing participants. The DOL has taken the position that 100 percent withholding (i.e., submitting the entire account balance to the IRS) is not in the interest of participants, and, therefore, violates ERISA's fiduciary requirements.