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No matter how you lost touch with a member of your benefit plan, it is your fiduciary responsibility to track down any members of your plan who may have fallen off the radar. The IRS used to help by providing a letter forwarding service to help locate missing participants but as of August 31, 2012, and the release of Revenue Procedure 2012-35, the IRS stopped this letter forwarding program. Basically, you’re on your own.
Now, to be in compliance with the Employee Retirement Income Security Act (ERISA), you must perform your due diligence in finding these former employees any time you have a change in their benefits under your qualified plan. The IRS does not clearly define what it means to do your due diligence, but there are several things that you can do to show that you have acted in good faith while trying to find them.
The Department of Labor (DOL) offered up a few guidelines in their Field Assistance Bulletin (FAB) 2014-01. They suggest that the first four steps of the process must be taken to show due diligence.
- Send a certified letter to the last known address of the missing member.
- Check other employer plans Life insurance, Health insurance, and others (HIPAA rules may stop you from getting very far here).
- Try contacting any beneficiaries listed in the policy.
- Do a thorough Internet search including social networks and people finders.
The DOL also suggests that further measures be taken if the account in question has significant monetary value (the actual amount here is fuzzy as no examples were given). According to FAB 2014-01 any of the following steps that are taken can be paid for by funds from the participant’s account to offset the cost of finding them.
- Contacting credit reporting agencies
- Hiring commercial locator services
- Using an investigation database
- Contracting with information brokers
If you fail to take these steps, the DOL could find you in breach of your fiduciary responsibilities and subject you to fines.
According to the Senex Group, ” If for whatever reason you are unable to set up or find an IRA provider to accept the distribution then the plan fiduciary can consider setting up an interest-bearing bank account for the benefit of the participant or transfer the assets to the participant’s state’s unclaimed property fund. The plan fiduciary must consider all facts and circumstances, bank charges, interest rates, and the process for the state’s unclaimed property funds before making a decision.”
There’s a lot on your plate when you sponsor a retirement account for your employees, but the benefits far outweigh the potentially issues like this one. If you’d like to talk about the benefits, or if you’d like to discuss a potential missing beneficiary, call Miguel Palma at (925) 307-5454 and set up a free consultation.