On January 12, 2021, the Employee Benefits Security Administration (“EBSA”) of the Department of Labor (“DOL”) announced new guidance on a range of issues related to missing participants:

  • In Missing Participants – Best Practices for Pension Plans, EBSA has provided examples of best practices that it has identified as being effective at minimizing and mitigating the problem of missing or nonresponsive participants.
  • This new guidance also includes Compliance Assistance Release No. 2021-01, which provides a roadmap of investigative processes and case-closing practices of EBSA investigators who conduct Terminated Vested Participants Project (“TVPP”) audits of defined benefit pension plans. One purpose of these audits is to assess whether defined benefit plans have taken appropriate steps to locate missing participants and beneficiaries.
  • EBSA also issued Field Assistance Bulletin No. 2021-01, which announced the DOL’s temporary enforcement policy on a terminated defined contribution plans’ use of the Pension Benefit Guaranty Corporation’s expanded missing participants program.

This article focuses on the guidance for ongoing plans (and not Field Assistance Bulletin 2021-01 for terminated plans).


Continue Reading Five New Ways That Plan Fiduciaries May Locate Missing Participants

On September 3, 2019, the IRS issued Revenue Ruling 2019-19, which discusses participants’ and beneficiaries’ inclusion of income and qualified retirement plans’ withholding and reporting obligations for uncashed distribution checks.  Although the Revenue Ruling describes only a qualified retirement plan under Code section 401(a), the same reasoning would most likely also apply to a Code section 403(b) plan.  Under the facts of this Revenue Ruling, a qualified retirement plan must make a distribution of $900 to a participant in 2019.  The participant receives the check from the plan but chooses not to cash it in 2019.  The IRS ruled that the participant’s failure to cash the check did not relieve her of the obligation to include the amount of the distribution in her gross income in 2019.  Similarly, the employer, as plan administrator, was obligated to withhold tax on the distribution that was required to be withheld under Code section 3405.  Finally, the employer was required to report the distribution amount on Form 1099‑R, and the participant’s failure to cash the distribution check did not affect this obligation.

These rulings are unsurprising based on existing law, particularly the doctrine of constructive receipt that is codified at Code section 451.  The IRS already ruled on a similar factual situation in Revenue Ruling 68-126, for example.  In that Revenue Ruling, a taxpayer could have received a retirement benefit check in one taxable year by appearing in person and claiming it but instead waited for the check to arrive in the mail in the following taxable year.  The IRS held that “the income is constructively received in the year preceding the year of actual receipt,” and that the retiree therefore had to include the amount of the check in income in the earlier year.  A rule that a participant could choose to delay inclusion in income of a distribution until a later year by simply failing to cash a distribution check in the year the plan issued it would also undermine the requirements to take required minimum distributions under Code section 401(a)(9).


Continue Reading IRS Issues Ruling on Uncashed Distribution Checks from Qualified Plans

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.
Continue Reading What to Do with Missing Participants: Department of Labor Provides Guidance