PenChecks Blog

Managing Missing Participant Accounts and Fiduciary Responsibility

Terminating a retirement plan can be a complex and time-consuming process – especially when missing participant funds are involved. Protecting against breach of fiduciary duty is always a serious concern for plan trustees, and dealing with missing participant funds only increases this concern.

Last month, Plan Consultant Magazine published an article entitled “I’ll Be Missing You: Tips For Locating Missing Participants.” Written by Charlene Kelley, a partner at Quarles and Brady, LLP, it’s an excellent overview of the fiduciary issues facing plan sponsors.

As the article points out, FAB 2014-01 requires plan sponsors to make a reasonable effort to locate all missing participants. Specifically, it mandates four location steps, and suggests “reasonable additional steps” to satisfy your fiduciary responsibilities when missing participants with larger balances can’t be found. Mandated steps include:

  • Using certified mail
  • Checking related plan and employer records
  • Checking with designated beneficiary/ies
  • Using free electronic search tools

If these fail to locate the missing participant, FAB 2014-01 suggests plan sponsors use paid electronic search tools, such as commercial locator services, credit reporting agencies or fee-based databases.

PenChecks Trust has been assisting institutions, TPAs, advisors and plan sponsors with this specific problem for nearly two decades, so we’re always glad to see others contribute sound advice in a sometimes-confusing arena.

Missing Participant Distribution Options
If a plan still can’t locate missing participants and needs to make a distribution, Department of Labor (DOL) regulation 2550.404a-3 outlines a process plan sponsors can take for Safe Harbor distributions. Kelley points out that a transfer to an individual retirement account (IRA) should be the first avenue to explore. Fiduciaries need to make sure the IRA administration and its investment complies with the safe harbor requirements. What often makes this task more difficult is the fact that many IRA vendors will not take account balances of less than $1,000 – a common occurrence with missing participant accounts.

Kelley also states that if an IRA doesn’t suit the fiduciary, other options include:

  • Opening an interest-bearing federally insured bank or savings association account; or
  • Using the unclaimed property fund of the state in which the participant’s last known address is located

The appeal of these other options is lackluster at best, and potentially disastrous at worst. These options subject the retirement funds to income taxation, mandatory income tax withholding and possible additional penalties for premature distribution – all of which reduce the amount of money available for retirement.

But wait . . . there’s more! In FAB 2014-01 the DOL goes on to say that “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.” Given this warning by the DOL, why take the chance?

Some plan trustees believe that withholding 100% of the benefit, which moves the entire benefit to the IRS will eliminate that need for ongoing administration. But, the DOL is very clear on its position that 100% withholding is not in the best interest of the participant and, in fact, violates fiduciary requirements.

So, what to do?

A Simple Missing Participant Solution
PenChecks Trust has a better idea – our Premier IRA Fiduciary Service. We perform all the steps required to locate missing participants for you. And when they can’t be found, we establish a fully compliant, Safe Harbor Missing Participant IRA to protect participant funds.

We’ve been doing this for nearly two decades – longer than any other provider in the country. We have special Missing Participant IRAs as well as systems and procedures specifically designed to serve this need. And PenChecks Trust does not have account minimums for purposes of establishing missing participant IRAs under §2550.404a-3.

We make it easy for plan sponsors to move these funds out of their plans, and we help reunite missing participants with their retirement savings through our ongoing search efforts. Equally important, when you use our Missing Participant services, the fiduciary responsibility for the funds transfers to PenChecks Trust under the Safe Harbor regulations, so there is no lingering risk to the original plan trustee(s).

We believe everyone is entitled to their hard-earned retirement savings. We also believe that plan sponsors have better things to do than chase missing participants and manage unclaimed accounts. Our Missing Participant solution can do all that for you and more, so you can spend more time serving your clients and growing your business. To learn more, visit our website at

Spiro Preovolos
Vice President, Business Development
PenChecks Trust

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