What is a Missing Participant?

Is Your Qualified Plan Missing Participants? 

Here’s what to do.

What do you do when your company’s qualified retirement plan is missing the actual account holder (in most cases, a former employee)? In other words, if your plan requires certain actions on behalf of the participant, such as mandatory distributions or automatic rollovers, and for some reason you cannot locate that person, what steps should the plan sponsor take?

Let’s say your employer plan provides for automatic rollovers of accounts with more than $1,000 but less than $5,000 (according to IRS regulations); these assets must be rolled over to an IRA established by the plan sponsor (employer) on behalf of the participant (employee), unless otherwise instructed by the participant. That’s all fine and good when you are able to communicate with the participant—but when the participant seems to be missing, there are several steps to follow to insure that proper care was taken in trying to locate the unresponsive participant before distributing out any assets.

Some methods sponsor (employers) can use to locate the participants are: using certified mail, checking related plan/employer records such as contact information on health plans, contacting designated beneficiaries, or searching several Internet sites that offer individual search capabilities.  All these search methods have little cost associated with them and are relatively simple to do.

When it is apparent that the participant can’t be located, the preferred method of handling these funds are for the plan fiduciary to set up individual IRAs on behalf of the participants with a custodian who agrees to accept these accounts.  This is the preferred option because it preserves the retirement assets and continues the tax-deferred status of the funds on behalf of the participant. Many custodians and administrators don’t want to handle these types of plans; however, Next Generation Trust Company works with employers to get the accounts opened and retain their tax-advantaged status for the lost participant; we also work with any participants who do come forward to either take a distribution or transfer the funds if they wish. If employers are closing their retirement plan, Next Generation Trust Services can also help them and their employees with that transition.

The Department of Labor and the IRS also recommend that plan sponsors elect to set up an IRA on behalf of missing participants in terminated plans as well.  You’ll find more detailed information on the website of the Department of Labor at www.dol.gov.