On January 12, 2021, the Department of Labor (the “DOL”) published three pieces of guidance. All three deal with the DOL’s ongoing concern about participants and beneficiaries in ERISA-covered plans for whom the plan sponsor does not have a current address.
First, the DOL published “Best Practices” guidance. It initially notes that “EBSA has undertaken a nationwide compliance initiative to help retirement plans focus on practices to maintain complete and accurate census information, communicate with participants and beneficiaries about their eligibility for benefits, and implement effective policies and procedures to locate missing participants and beneficiaries. This document outlines best practices that the fiduciaries of defined benefit and defined contribution plans, such as 401(k) plans, can follow to ensure that plan participants and beneficiaries receive promised benefits when they reach retirement age.”
This guidance then lists several “red flags” that often indicate that a plan has a missing participants issue. One example is when there is “more than a small number of missing or nonresponsive participants.” (This guidance does not define the term “small number.”) As another example, a plan sponsor might lack proper policies and procedures for handling mail returned and marked “return to sender,” “wrong address,” “addressee unknown,” or otherwise, as well as for handling uncashed checks.
The DOL then provides many examples of best practices to help avoid and address this issue, under the following categories:
Second, the DOL released Field Assistance Bulletin No. 2021-01 (the “FAB”). The FAB announces a temporary enforcement policy for terminating defined contribution plans’ use of the Pension Benefit Guaranty Corporation’s (the “PBGC”) expanded Missing Participants Program. Under that program, established on December 22, 2017, the PBGC holds retirement benefits for missing participants and beneficiaries in most terminated defined contribution plans and helps those participants and beneficiaries find and receive their plan benefits.
The FAB notes that the COVID-19 pandemic may cause disruption of recordkeeping and search activities of employers. Given that the disruption could result in large numbers of workers losing contact with their former employers and plans, the FAB states that “it is even more important in the wake of the pandemic to facilitate the transfer of missing participants’ account balances to the PBGC upon the termination or abandonment of an individual account plan and, thereby, increase the likelihood that missing participants can locate and access their benefits.”
Under the FAB’s temporary enforcement policy, the DOL will not pursue ERISA violations against terminating defined contribution plans’ fiduciaries in connection with the transfer of a missing or non-responsive participant’s or beneficiary’s account balance to the PBGC rather than to an IRA, certain bank accounts, or to a state unclaimed property fund, if the plan fiduciary has acted in accordance with a good faith, reasonable interpretation of ERISA. However, the FAB does not absolve fiduciaries of their duty to search diligently for missing participants and beneficiaries before the transfer of their account balances to the PBGC, or fiduciaries’ duty to maintain accurate plan records.
Third, the DOL issued Compliance Assistance Release 2021-01 (the “Release”). The Release explains that the reason for this guidance is “to ensure consistent investigative processes and case-closing practices among the Employee Benefits Security Administration’s Regional Offices conducting Terminated Vested Participants Project (TVPP) audits and to facilitate voluntary compliance efforts by plan fiduciaries” in defined benefit plans. The DOL’s TVPP audits seek to ensure that those plans (1) maintain adequate census and other records necessary to determine participants’ and beneficiaries’ benefits under the plan; (2) have appropriate procedures for advising participants with vested benefits of their eligibility to apply for benefits; and (3) implement appropriate search procedures for terminated participants and beneficiaries for whom they have incorrect or incomplete information.
The Release provides examples of documents the DOL requests during its TVPP audits (e.g., plan documents, summary plan descriptions, and participant census records). The Release then provides examples of issues for which the DOL looks during those audits, such as systemic errors in plan recordkeeping and administration and inadequate procedures for identifying and locating missing participants and beneficiaries. The Release concludes by explaining the process whereby the DOL notifies plan sponsors of issues discovered during a TVPP audit.