PLANSPONSOR - February/March 2018 - 63

SAXON ANGLE
Lost and Not Found
F
The ongoing dilemma as to missing participants
or many years, the issue of missing and unresponsive participants
in retirement plans was considered just another
headache of plan administration. Most plan fiduciaries
would reasonably expect that having at least some missing
participants was inevitable and that, provided that reasonable
procedures were in place to locate such people, plan fiduciaries
could satisfy their obligations under the Employee Retirement
Income Security Act (ERISA) and move on to the next of many
issues on their list.
However, over the last several years, plan fiduciaries
across the country have begun experiencing the shared dread
of opening their mail to find a notice of investigation from the
Department of Labor (DOL) inquiring about procedures for
locating missing participants.
This effort is no secret. Nearly every DOL regional office
has indicated that it is an enforcement priority to examine
the plan's procedures for locating missing terminated vested
participants. But, significantly, it's not only the participants
that are missing-clear regulatory guidance is as well. The
DOL, the Internal Revenue Service (IRS) and the Pension
Benefit Guaranty Corporation (PBGC) have each issued guidance
in various circumstances describing the responsibilities
of plan sponsors and fiduciaries to search for participants
and beneficiaries. However, such guidance generally does not
apply to a plan fiduciary's or sponsor's duties with respect to an
ongoing plan.
The guidance is often contradictory regarding the steps
to be taken to find participants. One approach to conducting
the searches has been to follow the steps provided in Field
Assistance Bulletin (FAB) 2014-01, which describes " reasonable
efforts " for finding participants in terminated defined
contribution (DC) plans. While the FAB is technically applicable
only to terminated plans, it may provide a general framework
for developing processes for active plans.
Another approach is to engage specialty outside firms
that focus exclusively on finding lost participants. In addition,
a new option may be available to DC plans as a result of the
PBGC's recent expansion of its missing participants program-
a significant and rare step for that agency outside of its traditional
limited scope of defined benefit (DB) plans.
In the case of the IRS, guidance in this area focuses on
plan search procedures at the time that a participant nears age
70 1/2 and must take minimum required distributions.
Notably, the PBGC and DOL guidance differs in significant
respects, including the circumstances in which to use
commercial locator services. The DOL recommends that plan
fiduciaries first engage in internal search procedures such as
reviewing other employer records, contacting plan beneficiaries
and conducting free internet searches. If these initial steps
are unsuccessful and the participant's benefit is significant
enough to justify the expense, the DOL suggests that the plan
fiduciary then take additional steps such as hiring a commercial
locator service. The PBGC, on the other hand, requires the
use of a locator service unless the plan sponsor determines
that, because the account is so small, the cost of the search
outweighs the benefit. In such cases, the PBGC recommends
conducting internal searches similar to those described by the
DOL in FAB 2014-01.
In any case, neither option provides guaranteed protection
from regulatory scrutiny. The absence of clear guidance
or of some consistent national enforcement policy has led to
unsurprising results. DOL investigations are handled on an
ad hoc basis, leading to inconsistent outcomes that depend on
the particular office or investigator involved. In this regard,
while these investigations generally all begin with furnishing
the DOL with participant contact information as well as the
policies and procedures used to locate participants, there is
no way to predict whether the department will claim there is
some deficiency with respect to the plan fiduciary's search
processes-it all depends on the investigator. For instance,
the frequency with which a plan searches-e.g., annually-for
missing participants may or may not be an issue, depending on
the investigator.
All this said, despite the unpredictability of the DOL's
initiatives in recent times, there is some reason to expect that
missing participant guidance may be on the horizon. Thus,
despite their unique and serpentine paths, all of the current
open investigations may find a common ending in the form
of an order to comply with forthcoming guidance regarding
missing participants.
Stephen Saxon is a partner with Groom Law Group,
Chartered, in Washington, D.C. George Sepsakos, an
associate with Groom, contributed to this article.
PLANSPONSOR.com February-March 2018 63
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