Guidance on Missing Participants
Sheldon M. Geller
APRIL 2006 - The
Department of Labor (DOL) issued a field bulletin providing
guidance on the responsibilities of employee benefit plan
fiduciaries in connection with missing participants in terminated
defined-contribution plans covered by the Employee Retirement
Income Security Act (ERISA).
bulletin provides guidance on the steps ERISA fiduciaries
should take to locate participants when defined-contribution
plans are terminated and how to distribute assets attributed
to these missing participants when fiduciaries are unable
to locate them.
the event that routine methods, such as first-class mail
or electronic notification, of delivering a notice to participants
as well as former employees fail, the ERISA fiduciary should
take other steps to locate the participant or beneficiary.
Search methods include using certified mail, checking records
of related employer plans, or using a letter-forwarding
service, as well as Internet search tools, commercial locating
services, and credit-reporting agencies.
the event participants cannot be located or fail to elect
a method of distribution, the bulletin indicates that ERISA
fiduciaries may follow a new safe harbor regulation governing
automatic rollovers for guidance on distributing benefits.
The bulletin helps employers comply with ERISA and affects
the payment of benefits by establishing an individual retirement
account (IRA) on behalf of each missing participant. The
DOL issued a final rule regarding fiduciary responsibility
under ERISA for the safe harbor automatic rollover of plan
distributions. As of March 28, 2005, plan sponsors must
set up IRAs for participants entitled to mandatory distributions,
which are benefits with a value of $5,000 or less, who could
not be found or who failed to give directions concerning
their distribution. The DOL regulations provide “safe
harbor” fiduciary guidelines for establishing these
IRAs. Many employers are unwilling to assume this responsibility
and, thus, are avoiding the establishment of these IRAs
by reducing the mandatory cash-out threshold from $5,000
to $1,000. Cash-out amounts of $1,000 or less are not subject
to the automatic rollover rule. The drawback to this strategy
is that retaining a number of small accounts leads to additional
course of action is chosen in connection with the change
in law governing mandatory cash-outs, the necessary plan
amendments must be adopted by the end of the 2005 plan year.
Defined-contribution plan sponsors are likely to amend their
plans to provide for a cash-out on amounts of $1,000 or
less to avoid the automatic rollover rule and the establishment
of IRAs on behalf of these participants. Defined-benefit
plan sponsors, however, are likely to establish the cash-out
amount of $5,000, to avoid providing the additional information
required beginning in 2006 to explain the alternative forms
of payment under pension plans.
distributions of retirement plan benefits must be automatically
rolled over into an IRA when a separated worker fails to
elect a distribution method. The final rule protects retirement
plan fiduciaries from liability under ERISA by providing
a safe harbor in connection with two aspects of the automatic
rollover process. The safe harbor covers the selection of
an institution to provide the IRA as well as the selection
of the investments for the automatic rollover amount.
obtain relief under the safe harbor, a plan fiduciary must
satisfy certain conditions, including the selection of a
plan provider that is qualified to offer IRAs. The investment
products must be designed to preserve principal, and the
fees and expenses for these accounts may not exceed those
charged to other IRA customers.
M. Geller, Esq., is managing director of the Geller
Group LLC, a member of Focus Financial Partners, New York,