Benefits and Compensation

Are You Doing Enough to Find Missing Participants?

In part one of this article we explored the Department of Labor’s (DOL) guidance for locating missing participants in the event of a plan termination. Today we will look at what constitutes acceptable and unacceptable alternatives.

DOLAcceptable Alternatives

To the extent that the search efforts described above are not successful, the DOL permits certain distribution options, primarily because a plan cannot be terminated until the assets are paid out from the trust. The preferred distribution option is a rollover of the missing participant’s account balance into an individual retirement account (IRA).

In conjunction with the rollover alternative, the agency published a safe harbor regulation intended to protect a plan fiduciary with respect to the investment provider and investments selected to implement mandatory rollover distributions to IRAs. When the plan fiduciary chooses investment options intended to preserve capital with reasonable fees and expenses, it is deemed to have satisfied its duties under ERISA.


Best Practice

The plan sponsor should negotiate low or waived fees for the automatic rollover accounts, and select an investment vehicle intended to preserve capital and avoid asset deterioration.


Other distribution options are discussed in the DOL FABs; however, they require the fiduciary to make a facts-and-circumstances determination whether the alternative distribution is appropriate in light of   relevant conditions. For example, the plan administrator may open an interest-bearing federally insured bank account in the missing participant’s name, or transfer the account balance to a state unclaimed-property fund. Satisfaction of the customer identification and verification aspects required under the federal PATRIOT Act also may come into play when the account owner seeks to exercise control over the account.

Best Practice

Attention should be paid to the rules and requirements of the applicable state’s escheat program, because the intent is not to make the missing participant’s benefit unavailable to him or her.

Unacceptable Alternatives

The DOL confirms that alternatives expected to reduce the assets in the missing participant’s account are not acceptable, and should be avoided. For example, a distribution of 100 percent of the account balance that is simply withheld and sent as prepaid taxes to the Internal Revenue Service (IRS) on the missing participant’s behalf may work to the benefit of the plan but is unlikely to be in the best interest of the participant.

Best Practice

Establish procedures with the plan’s service providers that dictate that when participant communications or statements are returned as undeliverable, immediate steps are taken to locate the intended recipient.


It is advisable for plan sponsors to establish thorough written plan procedures for locating missing participants. It is equally important that any procedures established be adhered to in the event of a missing participant, not only to prepare for plan termination but also in cases when mail is returned as undeliverable, for benefit distributions following termination of employment or retirement, for spousal consent when the participant reports that his or her spouse is missing, and for related scenarios.

The DOL likely will be more lenient when the plan administrator fails to find a missing participant if the administrator can demonstrate a comprehensive search process.

Arris Reddick MurphyArris Reddick Murphy is an attorney with experience in the employee benefits and executive compensation practice area, and she is senior counsel with FedEx Corp.’s Tax & Employee Benefits Law group. Before joining FedEx, she held the position of associate with the law firm of Potter Anderson & Corroon, LLP, and worked in-house with The Vanguard Group and the City of Philadelphia as counsel to its Board of Pensions and Retirement. She is contributing editor of The 401(k) Handbook.

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