Missing participants, defined as individuals who have become disconnected from their retirement savings—often through their own inaction—are a significant challenge that has long plagued defined contribution plans. Unfortunately, the responsibility for locating these persons falls squarely on the shoulders of plan sponsors.
RELATED: 401(k) Missing Participant Research Reinforces DOL Guidance
Why Have a Missing Participants Policy?
Policies, along with their related procedures, provide a roadmap for day-to-day operations. Having a documented missing participant policy is about fulfilling a plan sponsor’s fiduciary duty to act in the best interests of plan participants, and to ensure that they receive benefits they are owed. It not only guides a plan sponsor’s actions, but it can also signal to regulatory agencies that a sponsor is serious about undertaking reasonable efforts to identify and locate missing participants.
Conversely, a weak or nonexistent missing participant policy could expose sponsors to unwanted scrutiny from a regulator, or even lawsuits and penalties—while a strong policy that doesn’t line up with day-to-day operations can be worse than having no policy at all.
Building a Strong Missing Participant Policy
Here are six steps that we believe are useful for building a strong missing participant policy, and in establishing the framework that guides efforts to locate participants.
- Involve the Team: When establishing a missing participant policy, it’s a good idea to Identify and involve the team responsible for locating missing participants, as they have practical experience and will ultimately be relied upon to adhere to the policy.
- Clearly Define “Missing” Participants: This is a vitally important step, as the definition of who is actually “missing” can vary. Your definition should be as clear as possible and should identify specific signs of missing participants (ex.—returned mail, an uncashed distribution check, no recent activity, etc.).
- Identify Procedures to Minimize Missing Participants: Dealing with missing participants is not simply about searching, it should also include preventative measures to minimize their numbers. These measures can include ongoing efforts to communicate, educate and actively encourage participants to keep their contact information updated.
- Define Search Procedures: This includes the type and frequency of searches, and the escalation of search intensity for participants approaching retirement age or participants with larger account balances. It’s important to strike a balance between effectiveness and cost, and vary the intensity based upon the different facts and circumstances.
- Identify Search Documentation and Retention: Maintain clear records of all search efforts undertaken for each missing participant. Document the date, type of search conducted, and the results. Retention policies should comply with relevant regulations.
- Conduct Annual Policy Reviews: Conduct annual reviews of the missing participant policy to ensure it remains effective and adapts to evolving technology, best practices, and emerging regulatory guidance.
To help in getting started, we’ve prepared a sample template for a missing participant policy available to download here.
A Strong Policy Benefits Everyone
A strong missing participant policy benefits everyone involved. Plan sponsors fulfill their fiduciary duty, mitigate administrative burdens, and protect their plan’s tax-qualified status. Employees have a better chance of reconnecting with their retirement savings and achieving retirement security. By establishing a comprehensive and well-documented policy with a dedicated team, plan sponsors can ensure they are taking responsible steps to find missing participants and to safeguard their financial future.
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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.
