More focus being put on 'lost' participants
While the defined contribution plan industry awaits more formal guidance from Washington on how to combat the issue of missing, terminated participants in active retirement plans, some sponsors and service providers already are working to refine and expand on existing practices for locating participants with stale addresses.
Rising workforce mobility, the growth of automatic enrollment and a more aggressive stance by Department of Labor auditors on the efforts that sponsors should take to find missing participants, among other factors, have made the task of finding missing participants more demanding.
One possible solution to the missing participant issue being explored by Retirement Clearinghouse LLC involves linking record-keeping systems to create a virtual database of participant records to locate former employees who have valid addresses on file with their new employers.
Spencer Williams, CEO of the Charlotte, N.C.-based firm, said the solution, which RCH refers to as "auto locate," emerged after a February survey showed two-thirds of participants who have an active account with their current employer also have a separate retirement account with a former employer.
The February survey, conducted by Boston Research Technologies in collaboration with RCH, incorporated responses from 1,000 individuals who had participated in a least one employer-sponsored retirement plan in the past, the majority of which were DC plans.
Mr. Williams said RCH is working on getting record keepers to participate in the network.
Until then, RCH continues to offer stand-alone missing participant searches for plan sponsors and record keepers, which start at $2.50 per participant account, Mr. Williams said.
Resources used by RCH in those searches include the U.S. Postal Service's National Change of Address database; LexisNexis, a database of legal and public records; credit reporting agency Experian; social media; and certified mail.Mr. Williams believes it is "incumbent" on the private sector to find solutions to combat the missing participant problem. According to the firm's February survey, 11% of terminated participants had a stale address.
In general, the federal government has trended away from providing information to help locate missing participants, Mr. Williams said, pointing to the discontinuation of the IRS' letter-forwarding program in 2012 as an example. The program, which the Social Security Administration also offered and also eventually dropped, helped plan administrators locate missing participants by attempting to forward letters to missing individuals on administrators' behalf.
Reasons provided for the termination at the time were the availability of electronic resources and locating firms, as well as federal budget constraints.
Guidance from Washington on how active plans should deal with missing participants is also "incomplete," said Neal Ringquist, executive vice president of sales and marketing at RCH.
In a letter to Deputy Assistant Secretary of Labor Timothy Hauser in October, the American Benefits Council requested the DOL issue guidance on the steps active plans must take to locate participants before and after funds must be disbursed from participants' accounts. (In 2014, the DOL issued guidance for missing participants in terminated defined contribution plans.)
It starts with the mail
Tee Ramos, Washington-based director of participant services at the Federal Retirement Thrift Investment Board, which administers the $550 billion Thrift Savings Plan, said officials use the plan's mailing of annual statements as an opportunity to identify and resolve issues related to missing participants. When mail is returned, it is flagged by TSP officials. Flagged participants who contact the TSP's call center are asked to update their addresses. If other contact information is on file like a phone number or email address, the TSP might attempt to verify a mailing address using those methods as well, he said.
Other efforts plan officials have taken to combat the missing participant issue, spokeswoman Kim Weaver said, included using TSP's social media pages to remind participants to keep their addresses current. Terminated participants with account balances of more than $200 are permitted to remain in the plan.
Mr. Ramos said plan officials are continuously looking for ways to improve the TSP's practices, and are considering engaging the services of a commercial locating firm to help find missing participants.
In general, the federal government doesn't experience large turnover. However, the TSP does include a large number of active and separated military service members who have a tendency to move frequently, Ms. Weaver said.
Last year at Pennsylvania State University, retirement plan executives assisted TIAA in finding valid addresses for participants who were active employees by cross-checking record keeper and university records.
After comparing TIAA and university records, plan officials found discrepancies in about 170 active employees' addresses, said Gary Scheidecker, pension strategist at the University Park-based school. Plan officials then reached out to the 170 employees, and were able to confirm valid addresses for roughly half of that group, he said.
Mr. Scheidecker said TIAA also uses LexisNexis and the national address database to find valid addresses for participants.As of Nov. 30, 2016, the total number of missing participants across the university's mandatory 403(b) plan and supplemental 403(b) and 457 plans was 2%, Mr. Scheidecker said. Active and former employees with invalid addresses were included in that figure.
The plans have about 35,000 participants and $5.3 billion assets combined.
Several methods used
Robert Austin, Charlotte, N.C.-based head of research at record keeper Alight Solutions, said his firm and its plan sponsor clients use several methods to find missing participants, including certified mail, free electronic tools and the telephone directories.
Mr. Austin said Alight will also work with locator firms like RCP Solutions to obtain valid addresses.
While record keepers will help find missing participants, the responsibility ultimately lies with the plan sponsor, said Michael Webb, New York-based vice president at consulting firm Cammack Retirement Group.
"There are a lot avenues that the record keeper has sufficient scale to take advantage of that an individual plan sponsor, especially a smaller sponsor, might not have," such as hiring a locator service, Mr. Webb said. However, "that doesn't mean that the plan sponsor is off the hook. They have to do their due diligence with the record keeper."
Mr. Webb urged sponsors and record keepers to make efforts to locate participants immediately after losing track of them and to remind workers to keep their addresses current for all benefits purposes.
Some people "don't get a lot of mail at home except for junk, so what motivates them to keep their address updated?" he asked.