Employers are being pressured to track down missing retirement plan participants owed hundreds of millions in benefits. The plan sponsors, as well as a supporting band of locator services adept at reuniting workers with overdue accounts, say they’re on board.
They just wish the trio of federal agencies leading the charge would clearly and consistently communicate what’s expected of those stuck holding unclaimed funds.
One component of the ongoing effort steered by the Internal Revenue Service, Employee Benefits Security Administration, and Pension Benefit Guaranty Corporation is prodding plan administrators to find missing participants by any means necessary—at one point effectively telling business leaders to “Google it”—or suffer consequences ranging from confusing audits to disqualification.
Staying on top of pensioners who have somehow fallen through the cracks became a priority upon passage of the Retirement Protection Act.
The 1994 law mandates that retirement plan sponsors—employers as well as third-party administrators such as Vanguard or Fidelity—conduct “diligent” searches for absent account holders so as not to shortchange anyone while terminating employer-sponsored benefit programs.
Fast forward a few decades and now federal authorities are contributing to the cause, disbursing over $300 million in overdue earnings since 2017. The PBGC estimates that more than 80,000 missing participants are owed about $400 million in unclaimed pension benefits.
Meanwhile, the Trump administration is purportedly drafting new rules to address outstanding compliance concerns, though no such project appears in the current regulatory agenda, the comprehensive list of rules that federal agencies plan to work on.
Lost and Found
Until recently plan sponsors could reroute benefit notices through letter-forwarding services operated by the IRS and the Social Security Administration in the hopes that government records might be more complete than their own. The IRS halted its fee-based correspondence help in 2012. Social Security, which had been collaborating with the PBGC on participant outreach, scrapped its service in 2014.
Sending out certified mail to unresponsive beneficiaries was one of the default methods plan sponsors relied on for compliance purposes.
In its 2004 guidance, EBSA urged practitioners to consider adding “Internet search tools, commercial locator services, and credit reporting agencies” to their to-do lists.
By the time the IRS issued its 2014 field assistance bulletin updating the fiduciary duty standards, the web advice section endorsed using commercial search engines, public record databases, obituaries, and social media.
“Plan fiduciaries must make reasonable use of Internet search tools that do not charge a fee to search for a missing participant or beneficiary,” the IRS wrote.
Filling in a few blanks once a decade isn’t good enough for members of the American Benefits Council, a trade group representing mostly large employers.
“The landscape has evolved since 2014 and appropriate consideration is necessary on privacy and fraud concerns related to potential steps that a plan fiduciary may be required to take,” Lynn Dudley, vice president of global retirement policy at the council, laid out in a letter to the Labor Department.
Something she emphasizes in that same letter, as well as in a recap of a 2018 meeting with EBSA director Preston Rutledge, is the mixed messages her group’s members receive when they’re called on to discuss missing participant remedies.
“The inconsistent and ad hoc positions being communicated by regional offices to our members during audit have created substantial uncertainty and must be addressed,” she wrote in 2017.
Last summer Rutledge told business leaders assembled at a U.S. Chamber of Commerce event that Labor officials are on it. EBSA aides declined to comment about regulatory deadlines, stating only that “missing participants remains an EBSA priority.”
The PBGC’s participant and plan sponsor advocate Constance Donovan, said she hopes practitioners hang in there, billing the interagency effort as “a great example of data sharing among and between federal agencies” that has yielded “substantial recoveries for participants.”
APSCREEN founder Thomas Lawson said the missing-participants landscape has exploded since Circus Circus in Las Vegas hired him in 1988 to track down 1,400 pensioners with whom the casino had lost touch.
The veteran employee background screener said he has refined how he goes about finding missing participants in the intervening decades.
But he still launches every investigation using the same technique that sewed up that first assignment within three days: running names through the standard credit bureaus and Social Security database. The actionable data typically returned by said searches, according to Lawson, includes current mailing address, phone numbers, and email addresses.
Trying to track down people via social media—or “amateur hour,” as he calls it—is a slippery slope, Lawson warned.
Scraping data from random Facebook pages doesn’t compare to the “personally identifiable information” contained in consumer records. he said. Plus, reaching out to a beneficiary’s friends or family listed on social media runs the risk of violating privacy laws.
PBI Research Services President John Bikus said his firm, which has been serving pension providers for about 40 years, launched its fiduciary-related location product last year to help clients deal with their missing-participant-sparked agita.
“There are no specific guidelines from the DOL or the IRS,” he said. PBI’s solution involves mailing, calling, and fielding responses online until it has the verified contact information clients require.
Bikus said one piece of advice PBI shares with clients is identifying “top tier” candidates they may want to pinpoint in short order: missing participants who have reached the required minimum distribution age or who are scheduled to begin collecting benefits soon.
“You definitely need to find those people as soon as possible,” he counseled.
An uptick in audits since EBSA launched its missing-participant pilot project in 2015 has undoubtedly stirred up business for PBI, Bikus said. So, too, has the growing market for pension risk transfer deals—liability-shifting transactions that require sellers to get their benefits obligations in order “before they can turn it over to somebody else.”
LifeStatus360 President Chris Scaramastra said his clients have complained about the erratic search standards DOL auditors spring on plan sponsors.
“There’s no consistency in the protocol on the investigator’s part,” he said, suggesting audits have become increasingly stressful and unpredictable over the past 18 months.
Axing the IRS’ letter-forwarding service had a lot to do with it, in his opinion. “Then nobody could follow the regulations to the ‘T’ because it had required the use of the IRS or the SSA forwarding service and both went away,” he said.
Scaramastra noted that his firm has performed some social media searches. Like the others, he’s not sold on the viability or wisdom of going that route.
“We’ve looked into it. But we don’t see where the real applicability is to it,” he said, stressing that unlike searches focused on verifiable information such as a Social Security number, social media data can be falsified, distorted, or hidden from interested parties. “You’re left with pretty much just a name.”