PenChecks Blog

DOL Enforcement Priorities & Terminated Participants

By Mike McWherter, JD, Chief Compliance Officer, PenChecks, Inc. and PenChecks Trust™

Fair Warning: The retirement plan space loves its abbreviations and acronyms. And the DOL is no exception. I certainly use them (sometimes to the dismay of my colleagues).

As many of you know, the Employee Benefits Security Administration of the U.S. Dept. of Labor (DOL) has National Enforcement Priorities. For the past few years their Major Case Enforcement Priority has centered on professional fiduciaries and service providers with large amounts of AUC (assets under custody) or AUA (assets under administration) and, on delinquent contributions.

But the DOL also has National Enforcement Projects – enforcement focused on protecting plan assets and participants’ benefits via field office investigations. One of the DOL’s National Enforcement Projects is Protecting Benefits Distribution or PBD. The distribution-focused PBD has three components:

  1. Terminated Vested Participant Project (TVPP) – Aimed at Defined Benefit (DB) plans to ensure they maintain current census data and properly communicate benefit eligibility to terminated vested participants.
  2. Distressed Plan Sponsors – formerly known as the REACT project – It seeks to protect plan and participant assets from the risks associated with financially distressed plan sponsors (think bankruptcy, receivership or other financial distress).
  3. Abandoned Plans – Also aimed at custodians with a large number of abandoned Defined Contribution (DC) plans on their platform.

Another DOL National Enforcement Project is the Contributory Plans Criminal Project (CPCP). The CPCP points out that contributory plans such as 401(k) and other DC retirement plans can be vulnerable to criminal acts such as fraud or embezzlement of plan assets by employers and/or employees with access to plan assets.

Aside from these DOL Projects there is also the ubiquitous ERISA plan audit. Generally, it applies to all plans with 100 or more eligible participants at the beginning of the plan year.

What do these DOL Projects and plan audits have in common? Terminated participants. They all involve participants who, by reason of their termination, are entitled to a distribution of their vested retirement benefit. Often these terminated participants are missing or non-responsive, especially if they terminated more than one year ago, didn’t leave a forwarding address, and have not initiated distribution or rollover of their retirement benefit.

What’s a plan sponsor and their TPA to do?
The DOL has set out in FAB 2014-01 what to do with respect to the required and optional search steps, as well as the preferred distribution option for missing participants in a terminating plan – open a Missing Participant IRA pursuant to 29 CFR §2550.404a-3.

The DOL has not issued a Field Assistance Bulletin for lost, missing or nonresponsive participants in on-going plans. But there is a sister regulation, 29 CFR §2550.404a-2, that contains nearly identical guidance for establishing a safe harbor Automatic Rollover IRA in that situation. Regardless, the issue is the same, the plan sponsor has a lost, missing or nonresponsive participant. Accordingly, as a matter of best practice the search methodology should be the same, and at PenChecks it is.

And how do you do meet these regulatory obligations and best practices? Use a reputable and dependable provider like PenChecks that offers a turnkey solution.

The DOL has also provided guidance on what not to do.
The DOL states that a plan fiduciary could open an interest-bearing, FDIC-insured bank account or escheat the balance to a state unclaimed property fund. But it then points out “the potential considerable adverse tax consequences to the plan participant”:

  1. The funds transferred are subject to income taxation
  2. Mandatory income tax withholding
  3. Possible additional tax for premature distributions
  4. Interest that accrues after the transfer generally would be subject to income taxation

In a nutshell, if you put the money in a savings account or escheat it you will have destroyed the qualified nature of the retirement benefit and reduced the amount of money available for retirement. Or, as the DOL states:

A prudent and loyal fiduciary would not voluntarily subject a missing participant’s funds to such negative consequences in the absence of compelling offsetting considerations. In fact, in most cases, a fiduciary would violate ERISA section 404(a)’s obligations of prudence and loyalty by causing such negative consequences rather than making an individual retirement plan rollover distribution. DOL FAB 2014-01, pp. 5 – 6.

Got missing terminated participants? Call PenChecks Trust at 800.541.3938, or schedule a call with one of our distribution experts. We’re here to help . . . and we know how.

Mike McWherter is Chief Compliance Officer for PenChecks, Inc. and PenChecks Trust Company of America, a leader in outsourced retirement plan distribution processing and Automatic Rollover/Missing Participant IRAs and related services. With 29 years of combined legal, financial institution and ERISA plan provider compliance experience, he provides guidance and oversight for all compliance matters, supervises regulatory exams and audits, and coordinates between outside counsel, management and the board of directors.


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