Missing participants (MPs) are former employees who have left funds in their retirement savings plans, usually 401(k)s, but have failed to maintain up-to-date contact information with their former employer and no longer manage their accounts. MPs can be a complex problem for companies to deal with and should not be neglected.
What Causes Missing Participants?
A combination of factors cause Missing Participants:
- Job turnover / changing employment: On average, defined contribution plan members change jobs ten times in a career, and 14.8 million plan participants change jobs each year.
- Relocation: 1 in 6 Americans will move each year and nearly 12 times in a lifetime.
- Mortality: One of six plan members dies before retirement, with 16% dying between ages 40 and 65.
- Lack of portability: Lack of plan portability results in high cash out volumes and "stranded" accounts after a job change.
- Auto-enrollment and plan changes: Small-balance and "unknown" account numbers are seen with auto-enrollment, especially at low deferral rates. Additionally, critical elements of plans change with company mergers, name changes, management transitions, etc.
Why Should Plan Sponsors be Concerned With MissingParticipants?
- MPs can result in administrative burdens, increased costs, and manager's fiduciary risk.
- Missing participants are more critical when nearing/reaching a distributable event (required minimum distribution RMD). The IRS is keen to collect deferred taxes when a distribution occurs or is due, and the Department of Labor (DOL) wishes to ensure participants receive any benefits owed.
- Missing participants can lead to plan audits; scrutinizing a plan's policies and procedures for locating MPs.
- Active plan sponsors have complained that they receive insufficient guidance in locating missing participants and are occasionally subject to inconsistent enforcement.
- An incorrect mailing address may result in sub-optimal awareness and outcomes for plan participants, including significant plan changes (investment changes, record keeper transitions, or plan termination), missed transactions (uncashed checks), or entirely forgotten accounts.
Summery
As you can see, Missing Participants are an issue that should be dealt with sooner rather than later; an ounce of prevention is much better than a pound of cure. If you would like more information about how plannotice.com can help you to prevent Missing Participants and best deal with the Missing Participants you have, click HERE
