When a defined contribution plan terminates, the plan administrator must distribute participants’ accounts as soon as administratively feasible.  However, participants do not always update the plan administrator when their contact information changes, and some participants may not be responsive when the plan administrator requests directions on how to distribute their accounts.

On August 14, 2014, the DOL published guidance describing the plan administrator’s fiduciary obligations in such a situation.  The guidance focuses on two questions.  First, what steps must a plan administrator take to try to locate a missing participant?  Second, if a plan administrator fails to locate a participant after taking any required search steps, what must the plan administrator do with the balance of the participant’s account?  The DOL guidance does not directly address analogous situations under defined benefit plans or health and welfare plans, but is likely to have relevance to them as well.

Required Search MethodsThe DOL guidance states that the methods that a plan administrator must utilize to search for a missing participant depend on the size of the participant’s account and the cost of the search method.  Some search methods are so inexpensive and so likely to be successful that a plan administrator is required to use them for any missing participant.  Thus, a plan administrator should always use the following methods before distributing a missing participant’s account:

  • Send notice to the participant’s last known address using certified mail.  The DOL has published a model notice that may be used for this purpose.
  • Check the records of the employer and the other plans sponsored by the employer to see if they have more up-to-date information.
  • Contact any individual that the missing participant designated as a beneficiary for purposes of the terminating plan or any other plan of the employer.
  • Use free Internet search tools, such as search engines, social media, public record databases, and obituaries.

If the plan administrator is unable to locate the missing participant using these methods, the plan administrator must consider whether additional, more expensive search methods are appropriate in light of the size of the participant’s account, including the use of commercial locator services and credit reporting agencies.  The DOL guidance confirms that plan administrators may charge missing participants’ accounts reasonable expenses for efforts to find them.  All decisions made to locate missing participants and distribute their accounts should be recorded in written or electronic form so that the plan administrator can show that it satisfied its fiduciary obligations.

Distribution Options.  If the plan administrator cannot locate the missing participant after taking any additional required search steps, then the plan administrator must select a method of distributing the participant’s account.  In most cases, the only permissible method is a rollover to an IRA.  The DOL guidance states that, because of the favorable tax consequences of a rollover to an IRA, selection of any other distribution option would generally constitute a violation of the plan administrator’s fiduciary duties of loyalty and prudence.  Plan administrators can ensure that they satisfy their fiduciary duties in selecting an IRA by using the DOL’s regulatory safe harbor.  If there is a compelling reason not to make a rollover distribution, the plan administrator may consider two other options: (1) transferring the participant’s account balance to an interest-bearing, federally insured bank account in the participant’s name, or (2) transferring/escheating the participant’s account balance to state unclaimed property funds in the participant’s last known state of residence or work location.