Smooth plan administration and seamless distributions are two priorities for a retirement plan sponsor responsible for a company retirement benefit, like a 401(k) plan. One thing that makes distributions more difficult is when plan participants go missing and can’t be reached by the plan sponsor.

These “MIA” participants not only add to the administrative burden of managing a retirement plan, they miss out on accessing their hard-earned plan benefits.

Why Participants Go Missing

When a retirement plan sponsor can’t locate former or terminated employees who participated in the plan, it results in a situation known as missing participants. In such instances, the sponsor faces challenges in delivering important communications, distributing benefits and fulfilling other plan-related obligations.

It’s estimated that tens of thousands of participants lose track of their 401(k), 403(b), 457 and other defined contribution (DC) savings each year. In your retirement plan, you likely have several or dozens of participants who have gone missing, and you know the challenge of finding them.

Missing participants include former employees who accrued benefits in the plan but can’t be contacted or don’t respond to the plan’s communications.

Participants’ forgotten 401(k)s often create administrative headaches and trigger compliance and fiduciary risks for plan sponsors.

Employees go missing (or are unresponsive) for various reasons, including that they:

• Terminated their employment with the company but failed to update their contact information.
• Moved to a different address and didn’t notify the plan sponsor or administrator.
• Changed their name and forgot to update their contact information.
• Ignored or overlooked plan sponsor or administrator communications about their retirement benefit.
• Weren’t inclined to take action to request a distribution because their benefit was small.
• Passed away and their beneficiaries were unaware of their benefits and did not claim them.

Plan Sponsors’ Administrative Burden

When plan sponsors can’t locate a retired or terminated employee, it creates several issues. First, tracking missing participants requires time, resources and extensive outreach efforts. This work often involves searching through outdated contact information, reaching out to family members and former colleagues or using specialized search services — all of which add to the administrative complexities and per-participant costs of managing a retirement plan.

Additionally, missing participants cause other problems, such as:

• Plan sponsors must distribute retirement benefits, per the plan document’s lost-participant and distribution language, regardless of whether the terminated participant has completed and returned the associated forms.
• Missing participants are included in census data reporting and may complicate a plan sponsor’s efforts to comply with regulatory requirements.
• Having an abundance of missing participants may trigger a compliance audit, which could cost several thousand dollars.
• Missing participants inflate the cost of providing retirement plan benefits to employees.

How Missing Participants Miss Out

When a participant loses track of their retirement plan benefit and the accumulated savings, it leads to problems for the individual that include:

• Loss of financial security. The primary problem for a missing participant is the potential loss of access to their retirement savings. Without knowledge of the retirement plan’s status or how to claim their benefits, a former or terminated employee may face financial insecurity during their retirement years.
• Missed opportunities for investment growth. If the plan participant is unaware of the location and status of their retirement plan, they may miss opportunities for optimizing their investment strategy. This lack of control over their retirement funds could result in missed chances for investment growth and wealth accumulation over time.
• Difficulty in estate planning. A missing participant may face challenges in estate planning if their family or beneficiaries are unaware of the existence of the retirement plan or how to access those benefits. This disconnect complicates the distribution of assets after a participant’s passing, causing delays and potential disputes among heirs.

Proactive and Required Strategy for Finding Missing Participants

Definiti encounters retirement plan sponsors who don’t realize the impact of missing plan participants or are aware of their fiduciary obligation to find them.

We recommend tackling missing participants proactively — per the plan document and in compliance with IRS and DOL requirements — and implementing best practice activities such as these:

• Request updated contact information. Regularly request contact information during the employee onboarding and exit processes so they understand the importance of keeping their contact information current and the consequences of being untraceable.
• Stay connected with former employees. Consider doing annual outreach to reachable former employees about the importance of keeping their contact information current. You could include distribution paperwork or information for participants to remind them of their options in the plan.
• Use a variety of search methods. These include certified mail, email, phone, social media, free online tools, credit reporting agencies and public records databases.
• Partner with a professional locator service firm. If your internal resources are limited, consider engaging a third-party provider specializing in locating missing participants. These experts possess the necessary resources and techniques to track down individuals efficiently, which could reduce your administrative burden and the associated costs.
• Implement missing participant procedures. Establish a formal process for your company’s diligent search efforts. Consider setting a dollar amount for what you’ll spend on missing participant searches, which could be tiered to retirement account balance sizes.
• Document your search efforts. Keep records of your outreach, including the dates of attempted contact and search methods you used. Retain electronic or hard copies of correspondence sent to last known addresses and other communications you send to participants about keeping contact information current.

We’re Here to Help

When you stay on top of the missing participants in your retirement plan, you can reduce the related administrative complexities, costs and compliance risks. Your proactive lost participant efforts enhance the overall experience for employees and retirees, ensuring timely access to their retirement plan monies without unnecessary delays or frustrations.

Have questions about missing participants not covered in this article? Reach out to your Definiti Retirement Plan Consultant for answers. If you don’t partner with Definiti today, let’s start the conversation. Call 1-888-912-3653 or email sales@definiti.com.

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This material has been prepared for informational purposes only, and is not intended to provide legal, tax or investment advice. Any tax-related discussion contained in this material is not intended or written to be used, and cannot be used, for (i) avoiding any tax penalties, or (ii) promoting, marketing or recommending to any other party any transaction or matter addressed herein. This material does not provide fiduciary recommendations concerning investments or investment management; it is not individualized to the needs of any specific benefit plan or retirement investor, nor is it directed to any recipient in connection with a specific investment or investment management decision. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material. 

This information is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this article without first seeking the advice of an independent tax advisor such as an attorney or CPA.