Washington has shifted again. In 2009, Democrats had complete control of Congress and the presidency. By 2017, complete control had shifted to the Republicans. Now the Democrats are back. One constant is sure to continue: a focus on missing participants in retirement plans. While much of the focus in recent years has been on the Department of Labor, the IRS has a key role to play as well.
First, let’s recap where we stand today. Since 2014, starting in its Philadelphia regional office and later expanding nationwide, the DOL has been actively focusing on missing participants. The term “missing participants” can include terminated vested participants who cannot be found at age 65, 70.5 or 72, as well as participants who are flagged as dead but who may actually still be alive (sometimes referred to in DOL investigations as “zombie” participants). In these investigations, the DOL has often required that extensive search activities be undertaken, pushed for corrections to be made under IRS correction programs before cases, and in some cases, required nearly all participants be “found” before an investigation is closed.
In January, the DOL issued three pieces of guidance:
- “best practices” for pension plans;
- a compliance release that details the investigation process for the Terminated Vested Participants Project; and
- Field Assistance Bulletin 2021-01 supporting the use of the PBGC’s missing participant program for terminating defined contribution plans missing or non-responsive participants.
In addition, the IRS has an item on its Priority Guidance Program relating to providing guidance relating to missing participants. While the IRS has issued some limited guidance recently (in Revenue Ruling 2020-24) regarding payments to state unclaimed property funds, it is not clear whether additional IRS guidance on missing participants will be coming soon.
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So, what comes next?
First, it is likely that DOL investigations will continue their focus on missing participants. Based on experience with new investigations started in early 2021, missing participant questions continue to remain a DOL focus. While the compliance release provides a framework for the potentially efficient completion of a missing participant investigation, time will tell whether the language in the compliance release allowing for “additional information requests” beyond the basic framework will become an exception or the norm. If it’s the norm, many of these investigations are likely to continue to be time-consuming in nature.
Second, while the DOL “best practices” are not binding authority, they suggest a number of steps to be taken—including posting lists of missing participants. Some of these steps raise concerns about potential fraud and security breaches that may lead many plan sponsors to be hesitant to take the recommended “best practices.” If the DOL attempts to require what they have listed, there is likely to be significant pushback from privacy- and security-minded plan sponsors.
Third, the IRS may, as noted in its priority guidance plan, clarify its existing rules under Code Section 411 regarding missing participants, which allow for forfeiture of missing participant balances. Given extensive reliance on the existing IRS regulations, any change could also have significant effects on ongoing and future DOL investigations.
Regardless of how each of these three items evolve, the DOL’s focus on missing participants is likely to continue in 2021 and beyond. Based on prior experience, careful proactive planning (including working with plan vendors), evaluating and adopting missing participant procedures, and reviewing insurance levels can often provide significant benefits that help move a DOL investigation forward to resolution quickly. As such, advisors who help their clients prepare in advance can provide significant benefit to them in both the short term and the long term.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column appears in the latest issue of NAPA Net the Magazine.
