Millions of Americans rely on pension plans to maintain track of their hard-earned benefits to ensure a comfortable retirement. However, investigations conducted by the United States Department of Labor in 2020 revealed that more than $1.4 billion in retirement benefits were separated from their lawful owners merely because employers lost contact with their former employees.
To address this issue and assist employers in reducing the likelihood of losing retirement plan participants, the Labor Department has released guidance on recommended practices for pension plans with missing plan participants.
The department's most recent recommendations are based on data from well-managed plans with a low percentage of absent or non-responsive plan participants. These plans have a strong compliance culture and use methods to maintain accurate records.
Employer-sponsored pension plans are controlled by the Employee Retirement Income Security Act of 1974 (ERISA), which was enacted to ensure the financial security of U.S. workers in retirement. ERISA governs a wide range of employer-sponsored benefit plans, like traditional pension plans, 401(k)-type plans, and additional benefits such as health insurance, vacation, and education. The law puts several requirements on these plans and their fiduciaries to guarantee that benefit plans are fair, adequately financed, and reliable.
Under ERISA, companies with more than 100 employees are required to conduct yearly plan audits. For many years, Labor Department plan audits have revealed plans with many missing participants, although no regulations mandate plans to do anything about missing participation. As a result, pension plans and their fiduciaries have long sought guidance from the government on keeping track of participants and remaining compliant.
According to the Labor Department's long-awaited guidelines, pension plans should use the four recommended practices listed below to guarantee that pension benefits are distributed to their rightful owners.
First, plans must maintain accurate census data. The guidance proposes various methods for maintaining accurate information, such as regularly asking participants for an update on their contact information, reporting undeliverable mail and uncashed checks for follow-up, analyzing census information, and correcting data mistakes. Furthermore, the guideline advises fiduciaries to pay attention to plan information transfer in the event of a merger, acquisition, or change of recordkeepers.
Second, more effective communication techniques should be used in planning. The guidance urges fiduciaries to provide help in both plain English and non-English where necessary. It recommends that fiduciaries promote ongoing communication with participants through websites and toll-free lines. Also, procedures requiring participants to update and confirm contact information are built into onboarding and departure processing for new or retiring members. For participants who left their jobs before the plan's name or sponsor changed, as may occur as a result of a merger or acquisition, communication from the plan should include the name of the previous plan or sponsor.
Third, plans should strengthen the search for lost participants. The Labor Department recommends using beneficiary and next-of-kin contact information to identify the most current contact information for the missing participant and reach out to coworkers or other members of the same plan to try to contact missing retirees. The pension plan fiduciary may consider cross-referencing other employment plan documents for more recent contact information, like healthcare plan documents.
The guidance also recommends collaborating with other organizations or firms, such as commercial locator services, credit-reporting agencies, social networking websites, USPS certified mail, or the Social Security death index, in order to contact the participant or confirm whether they’re still alive.
Finally, plans should include documentation of their procedures and activities. The Labor Department advises plan fiduciaries to have a paper record of all policies and procedures. Additionally, to ensure consistency, they should document critical decisions and the measures taken to apply their policies. For plans with third-party recordkeepers, the plan fiduciaries should closely oversee the third party to verify whether it’s performing the agreed-upon services and properly detecting and correcting any deficiencies in the plan's recordkeeping and communication processes.
Although not legally enforceable, the Labor Department's new guidelines are a step in the right direction toward ensuring that more pension plans keep in touch with their participants. Following these recommended practices may aid in the preservation of plan assets so that they’re available and deliverable to their proper owners at retirement.