DOL demands real action over missing participants

A more aggressive stance by Department of Labor auditors on how hard plan sponsors should try to find missing terminated vested participants is raising the call for more formal guidance, and forcing plan executives to pay more attention until it comes.

"There's enough chatter and confusion that it would be good to have a set of guidelines and best practices," said Dennis Simmons, executive director of the Committee on Investment of Employee Benefit Assets in Washington, whose members are chief investment officers at 104 large companies responsible for nearly $2 trillion in retirement assets. "Our members have every incentive to make sure participants get their benefits. No sponsor wants to not find these folks; it's just a practical issue."

It is a lesson that MetLife Inc. learned the hard way late last year.

Aware of the DOL's new emphasis on finding missing participants, the company reviewed its practices and discovered it had lost track of an estimated 13,500 participants, or about 2% of its pension risk transfer population, which forced it to increase reserves up to $525 million and to reduce earnings. In an 8-K filing last month, MetLife said missing participant practices established 25 years ago and management controls were "ineffective."

The DOL started a pilot program to address the missing participants issue in 2016 in the Philadelphia office of the agency's Employee Benefits Security Administration. That has since expanded across the country, with notable results. In fiscal year 2017, the DOL recovered $326.7 million for plan participants, and the tally is $114.6 million so far in fiscal 2018, according to agency data.

Calls to sponsor ​ advocacy groups from plan executives have ramped up correspondingly.

"We continue to hear from (plan executives)," said Jan Jacobson, senior counsel for retirement policy with the American Benefits Council in Washington. "A lot of (DOL) auditors are saying, 'You need to do more' — there are a lot of different things that I have heard them asking for."​

In a letter to Deputy Assistant Secretary of Labor Timothy Hauser last fall requesting formal rule-making on comprehensive guidance for plan fiduciaries, the council noted its members have encountered "inconsistent and alarming" positions taken by DOL auditors during routine examinations. Some auditors said that failure to find a missing participant was a breach of fiduciary duty, or forfeiting funds back into a plan until participants are found is a prohibited transaction, and plan sponsors could be penalized. Auditors also have insisted that sponsors try different search methods every year or reach out to friends and former colleagues of the missing participant or through social media. Some plan sponsors have been told they must do "whatever it takes" to find participants who are missing or not responding to communications.

The ERISA Industry Committee in Washington is hearing the most from members with the largest defined benefit plans being audited. "It's frustrating for them because there is just a lack of guidance on what activities they have to engage in, and how long they have to be engaged in it," said Will Hansen, senior vice president of retirement and compensation policy. He notes DOL officials are aware of the lack of guidance as well as sponsors' reluctance to breach the privacy of former employees.

Ideally, said Ms. Jacobson of the American Benefits Council, "we suggest they stop these audits until they come up with guidance."

A DOL spokesman said "the agency places a priority on consistent actions across our compliance assistance and enforcement activities, and will continue to work with plans and plan sponsors to connect retirees and beneficiaries with their pensions."

In addition to checking their own policies and procedures, CIEBA members also are making sure their record keepers have a process in place for finding missing participants, Mr. Simmons said.

"Given the potential penalties involved and the need for a coordinated response, it is a good practice to have a missing participants policy and designated persons within the organization who make regular efforts to keep participant information current," said David Rogers, partner at Winston & Strawn LLP in Washington.

Another good practice is for plan fiduciaries, including committees overseeing the plan, to be alerted when an audit is underway.

"The rational plan sponsor would be well advised to up their game," said Norma Sharara, a principal with Mercer's Washington resource group. "At least revisit the issue so when someone comes knocking your door, you are prepared. All along you need to be in constant contact with anybody you are holding money for. Somebody has to be responsible and the Labor Department is placing the burden on the shoulders of the employer."

Bipartisan legislation that would create a national online lost and found for retirement accounts was reintroduced in the Senate March 1 by Sens. Elizabeth Warren, D-Mass., and Steve Daines, R-Mont. The senators said the bill would make it easier for participants to find accounts and for employers to connect with former employees. Employers could also invest abandoned accounts in target-date funds more easily.

The proposed Retirement Savings Lost and Found Act is supported by the AARP and ERIC. Cristina Martin Firvida, AARP's director of financial security, said the group has worked with regulators and Congress to improve search processes. "We are concerned that there are efforts underway to undermine the regulatory protections retirees need to receive their benefits," she said.