If a tree falls in the forest, does it make a sound? Opinions are split on this weighty philosophical matter, but a more-definitive answer to another question may surprise you.
If a search for a missing participant is not properly documented, is it a diligent search? To regulatory authorities who may scrutinize a plan sponsor’s search efforts, the answer is decidedly “no.” For a regulator to consider a search to be diligent, it must be well-documented, and to do otherwise can result in audits, penalties and increased fiduciary risk.
Here are five tips for plan sponsors to better document their missing participant search efforts.
Tip #1: Identify Why a Search is Needed
Not all missing participant searches are equal, in terms of their urgency. Depending on the underlying reason for the search, some situations may require heightened attention and drive more intensive searches than others, so it’s important up-front to document why you are searching for a particular participant.
Typical drivers of missing participant searches include:
- A terminated participant’s account has no recent activity
- A stale address or returned mail
- An uncashed distribution check
- A pending required minimum distribution (RMD)
- Advanced age or other question of life status
- A plan termination, where required mailings generate returned mail or unresponsive participants
Clearly documenting the reason(s) prior to conducting searches is important to show that a sponsor has adequate situational awareness guiding their subsequent search activities. It also helps categorize missing participants so that an appropriate search methodology can be applied.
Tip #2: Identify the Search Methodology to be Applied
Based on the facts and circumstances, document the search methodology that will be undertaken, which could include:
- Searching internal records or publicly available information for alternative contact information.
- Utilizing a credit reporting service
- Engaging a commercial search provider for:
- Electronic, or e-searches
- Follow-on, intensive searches using additional search tools
- Ongoing monitoring of life status
- Conducting personal outreach to locate participants or their beneficiaries (ex. – email, phone, or social media) and/or the use of USPS Certified Mail
For example, a plan sponsor may have participants whose mail is being returned as undeliverable. For these participants, they may employ low-cost but reasonably effective electronic searches. At the higher end of the urgency scale, when participants are due but are not taking RMDs, the plan sponsor will likely employ more intensive searches.
Tip #3: Document the Search Results
When searches are conducted, a range of outcomes can result. To properly interpret search results, a plan sponsor should compare those results with the participant data that they currently have on file.
Search results should document:
- Current participant data on file when the search was initiated
- Search timeframe
- All data fields returned from the search
- An interpretation of the data that was returned, including:
- No data returned
- Data is obtained, but is the same as current data on file
- Data is obtained, but differs from current data on file
- Participant data is positively verified by the actual participant, a surviving family member or their beneficiary
These outcomes can be translated into unique “result codes” that are vital to determining if additional search activity is indicated, or if updates can be applied to participant plan data. If you utilize a commercial search service, ensure that they will provide an output report with all resulting data, including clear and concise result codes for each search they performed.
Tip #4: Document Actions Taken with the Search Results
As a final step in the search process, a plan sponsor should clearly document the action(s) taken following completion of the search, which could include taking no action, updating participant data or flagging the participant for further search activities.
Tip #5: Additional Documentation Considerations
As with any important documentation that may be subject to a third-party audit, search information should be kept up to date, should be thorough, and be accurate. It should also be stored in a secure location, accessible only to authorized individuals.
If an audit takes place, and the plan sponsor has engaged a commercial search provider, providing the auditor with a complete, detailed description of the provider’s search process is very useful. In situations where participants should be receiving benefits, but are otherwise still deemed missing, having the commercial search provider issue an audit letter attesting to the search steps that they undertook can be extremely helpful.
SEE ALSO:
• Dialing Up the Intensity of Missing Participant Searches
• Why Missing 401k Participants Are So Misunderstood
Tom Hawkins is Senior Vice President, Marketing and Research with Retirement Clearinghouse. He oversees all critical operational aspects of this area, including RCH’s web presence, digital marketing, and plan sponsor proposals. In other roles for RCH, Hawkins has performed product development, helped lead the company’s re-branding, evaluated and organized industry data, and makes significant contributions to RCH thought leadership positions.
