What to Do with the DOL’s Missing Participant Guidance?
Many of us are old enough to remember when the Department of Labor’s (DOL’s) top three initiatives seemed to be timeliness of contributions, timeliness of contributions, and, well, timeliness of contributions. Of course, that issue inherently relates to current employees who are actively participating in a plan. Although timely contributions remain near and dear to the DOL’s heart, we’ve seen the DOL’s most intense scrutiny directed toward the handling of prior employees’ plan accounts. Anyone who has endured a DOL audit now understands that the DOL is relentlessly pursuing its “missing participant” initiative. This article includes a brief summary of four pieces of relevant guidance, one from 2014 and three that were issued in January.
Background: 2014 Guidance. Roughly a decade ago, the DOL began to ask more questions about a plan administrator’s approach to locating and making distributions to prior employees. As it began to suggest that plan administrators weren’t doing enough to locate missing participants, plan administrators responded with pleas for guidance. With Field Assistance Bulletin 2014-01 (the 2014 FAB), the DOL provided its most practical guidance to date. It included, for example, an explicit suggestion to use Internet search engines. However, the 2014 FAB was limited in its formal import because, by its terms, it applied only in the context of terminated defined contribution plans. Since 2014, this has caused ERISA attorneys and consultants to advise, essentially, that the 2014 FAB doesn’t technically apply to ongoing (non-terminating) plans, but that was the best available formal indication of the DOL’s expectations.
“Missing Participants – Best Practices for Pension Plans”. On January 12, 2021, the DOL issued “Best Practices” guidance intended to apply more broadly than the 2014 FAB. It introduces a list of potential red flags with this profound sentence: “The first step in addressing any problem often is knowing there is one.” It then divides a series of 27 best practices into four main categories:
- Maintaining accurate census information for the plan’s participant population (with eight corresponding practices);
- Implementing effective communication strategies (six corresponding practices);
- Missing participant searches (10 corresponding practices); and
- Documenting procedures and actions (three corresponding practices).
Although the Best Practices guide closes with a reminder that it does not have the “force and effect of law” and “is intended only to provide clarity to the public”, we expect this to become the starting point for the process described at the end of this article.
“Compliance Assistance Release No. 2021-01”. Also in January, the DOL issued a memorandum to its regional directors with the purposes of: (i) ensuring consistent investigative processes and case-closing practices in the context of its “Terminated Vested Participants Project” audits; and (ii) facilitating voluntary compliance efforts by plan fiduciaries. This memorandum is intended to apply to defined benefit plans and therefore does not, on its face, describe the likely process for a defined contribution plan (such as a 401(k) or 403(b) plan). Nonetheless, its lists under “Information We Ask For” and “Errors We Look For” are instructive and likely should be incorporated into a plan sponsor’s internal review of its plan processes, without regard to whether the plan features a defined benefit or defined contribution structure.
“Field Assistance Bulletin No. 2021-01”. Finally, in January the DOL also issued a memorandum permitting a terminating defined contribution plan’s use of the Pension Benefit Guaranty Corporation (PBGC) Missing Participant Program. Although this memorandum’s relevance is both technically and practically limited to the context of a defined contribution plan termination, we wanted to briefly highlight its existence for plan sponsors struggling with the final distribution of assets in that context.
What To Do With All of This? Next week during QPA’s ERISA Attorney Talk, we will dive into the new guidance content – particularly the Best Practices – a bit deeper. But the short answer is that the DOL has now presented a roadmap for performing an internal audit of a company’s procedures for locating, communicating with, and making distributions to former employees. We know more about the most common mistakes the DOL encounters and its expected framework for policies and procedures that seek to avoid those mistakes and “get people their money”. Please join us for the next stage in this discussion and then we can continue to talk through exactly how this process should be memorialized and implemented for your organization.