401(k) Compliance Check #5: Keeping 401(k) Participants Out of the Lost and Found Box

In final month’s 401(ok) Compliance Check, we mentioned the selection of typical notices {that a} 401(ok) plan should ship to plan individuals. On this month’s Compliance Check, we give attention to the problem of learn how to deal with a state of affairs the place the 401(ok) plan is unable to achieve a plan participant, i.e., “missing participants.”

Why is This Subject Vital?

As a 401(ok) plan sponsor, you will have quite a few fiduciary tasks. Nonetheless, from the Division of Labor’s (DOL’s) perspective, there may be maybe none extra basic than guaranteeing that individuals obtain well timed distributions from their 401(ok) plan accounts.  These distributions could also be in the kind of funds at regular retirement age, small stability cashouts, or required minimal distributions.   

Over the final a number of years, the DOL has elevated its compliance enforcement actions in the space of lacking individuals. Specifically, via its audit course of, the DOL has pressured plan sponsors to find lacking individuals entitled to obtain 401(ok) plan distributions, or face substantial penalties. To encourage plan sponsors to take proactive steps to find lacking individuals, the DOL issued steerage on finding lacking individuals in the kind of “Best Practices.”  Not each ingredient of the DOL’s steerage might be practicable or applicable.  Nonetheless, your implementation – and documentation – of these which can be will present that you’re severe about this compliance problem in case you develop into topic to a DOL examination.

Click here extra data on the DOL’s steerage.

However Do We Actually Have a Downside?

It’s possible you’ll very nicely have a lacking participant downside you probably have observed former staff who’ve t reached retirement age, however haven’t requested or began receiving plan distributions. One other signal of a possible downside is inaccurate or incomplete contact data in your information, whether or not in digital or paper kind. Lastly, you might have an issue if you’re accumulating various returned mail objects and uncashed checks.

It Takes a Village

As the adage goes, it takes a village . . . . The identical strategy applies to implementing practices to establish lacking individuals. Relying upon the dimension of your organization and staffing, it could be obligatory for advantages, human assets, payroll, administrative companies (e.g., mailroom companies), and data know-how personnel, together with the plan’s report keeper, to make sure that former staff’ contact data is present. Modifications to contact data should be coordinated and shared all through the firm and to/from the plan’s report keeper.   

Examples of the DOL’s Greatest Practices

The DOL has recognized almost 30 far-ranging finest practices for plan sponsors looking for to handle the lacking participant problem. Based mostly on the DOL’s finest practices steerage, you could resolve to think about the following:

“Preventative” Measures

  1. Contact present and retired individuals on a periodic foundation to verify or replace their contact data, equivalent to dwelling and enterprise addresses, phone numbers (together with mobile phone numbers), and subsequent of kin/emergency contact data.

  2. Throughout the worker exit processes, affirm or replace contact data and stress the significance of guaranteeing that the plan has correct contact data always.

  3. Check different profit plan and firm information for participant contact data. For instance, it’s attainable that payroll information or the group well being plan could have present data.

  4. When furnishing plan data (equivalent to abstract annual experiences, participant statements, and summaries of materials modifications) embrace language (maybe in daring, or highlighted) that prompts the recipient to offer up to date contact data.


    • Make the course of easy to behave upon – e.g., present a toll-free cellphone quantity, e mail handle of contact individual, inside net portals, or kinds with self-addressed envelopes. 

    • Be certain that there’s a designated level individual liable for sharing up to date contact data to the individual in cost of making updates in the advantages, human assets, and payroll departments, in addition to to the plan’s report keeper.

    • Determine an organization consultant (maybe somebody liable for inside controls compliance) to periodically monitor or audit the course of of updating contact participant data to make sure that such data is right and constant all through the firm and with the plan’s report keeper.&

  5. Require that the 401(ok) plan service representatives responding to participant questions embrace, as half of their script, a request to verify contact data. This may be particularly essential if the participant’s 401(ok) stability consists of quantities transferred from an acquired/merged employer’s plan. Equally, the accompanying web site may very well be arrange such {that a} participant could be required to verify contact data earlier than continuing.


    • Contemplate negotiating a time period in the report keeper companies settlement that addresses its function and obligation to cooperate in the lacking participant course of (conscious, of course, that finding lacking individuals is in the end the firm’s duty). 

  6. Set up a course of amongst the firm’s administrative companies and human assets/advantages departments, together with the plan’s report keeper, to promptly examine undelivered mail to plan individuals and uncashed distribution checks.


    • Delegate an organization consultant to be liable for reviewing an inventory of uncashed distribution checks, and taking motion to find the meant recipient in accordance with the firm’s lacking participation location apply.   

    • Determine a distinct firm consultant to periodically monitor or audit the course of. 

Out of the Box Concepts (“Handle with Care”)

  1. Utilizing social media to contact people could also be useful. Nonetheless, you ought to be conscious that social media contact data might not be dependable. There isn’t a assure that your message will attain the meant receiver. Even when the message is obtained, the particular person could ignore it as a rip-off. Or, a nasty actor could obtain the message and fraudulently search to obtain the lacking participant’s plan distribution.

  2. Contact beneficiaries or emergency contacts on file with the firm (e.g., partner or kids). Contemplate that there are circumstances the place a person doesn’t wish to be discovered – maybe for causes of private security. Consequently, these people could also be reluctant to share contact data even in case you recommend that they function an middleman. Furthermore, somebody recognized as a beneficiary or emergency contact could not essentially have the finest pursuits of the lacking participant in thoughts and could try and obtain plan distributions fraudulently.

Final Ditch Efforts

  1. If individuals are nonresponsive over a interval of time, attempt obituary or demise searches (e.g., Social Safety Dying Index) to find out if the participant has died. If that’s the case, you need to attempt to find any designated beneficiaries, if wanted. 

  2. Use a business locator service, credit score reporting company, or on-line public report databases (equivalent to these for actual property taxes) to find lacking individuals. Remember that some of these companies and databases could cost for his or her companies.

Regardless of which of the DOL’s finest practices you discover to be practicable or applicable, make sure to doc them. And of course, as soon as documented, comply with them.  By implementing some, or all, of these practices, not solely will you be extra prone to discover lacking individuals (or higher but, stop the downside altogether), you’ll have proof of your good religion compliance in the occasion that the DOL stops by for an examination.

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