Do you have a process for locating missing participants?
More than three million Americans leave private industry employers every month. Many have chosen to participate in their company’s retirement plan and some participate as a result of automatic enrollment. Too often they leave these accounts behind when changing employers.
The Department of Labor (DOL) has not issued comprehensive guidance on plan fiduciary responsibilities with respect to unresponsive and missing participants in an active plan. But the DOL’s guidance for terminated defined contribution plans, outlined in Field Assistance Bulletin No. 2014-01, is instructive. The FAB outlines steps the plan fiduciary should take to search for missing participants in order to reunite former employees with their retirement savings. These same steps may make sense for an active plan.
As with many aspects of retirement plans, it’s critical to establish and adhere to a specific process, as well as document the reasoning behind the process adopted by your plan. One best practice aspect of that process may be an automatic rollover provision for participants that the plan is unable to locate. This allows plan sponsors to move accounts with balances of $5,000 or less into rollover IRAs as long as certain safe-harbor requirements are met with respect to the selection of the IRA custodian and the investment of rollover IRA funds..
Once the IRA rollover is complete, the former employee is no longer considered a participant in the plan, and the company is considered to have satisfied its fiduciary duties, as long as the safe harbor requirements have been met.
The advantages can be significant. Former employees benefit because IRA custodians, like Millennium Trust, have search processes in place to help reunite participants with their retirement plan assets. While the search is conducted, these participants’ savings remain invested with any earnings growing tax-deferred.
Automatic rollover provisions benefit plan sponsors too, by potentially minimizing fiduciary liability, reducing plan costs, and simplifying plan administration. For example, a university that added a Millennium Trust rollover solution removed more than 450 missing participants from its plan, and reduced PBGC premiums by about $30,000 a year.
While plan sponsors have a responsibility to choose the right IRA provider, once a provider has been chosen, fiduciaries are not required to monitor the provider or ensure its compliance with IRA agreements. The terms of the agreement are enforceable by the participant.
If you would like to learn more about adding automatic rollover provisions, please call 630.368.5614.
The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.