The Pension Benefits Guarantee Corp. (PBGC) has announced that it has expanded its missing participant program to include terminated defined contribution (DC) plans. Previously, only defined benefit (i.e. pension) plans were eligible for this program.
Before this option was created DC Plan Sponsors often were in a predicament when trying to terminate a Plan. In order to terminate the Plan, they needed to pay out all the assets, but they often had participants they could not find who would delay the closing of the Plan. Additionally, these participants may have relatively small balances that could normally be transferred to an IRA; but many financial institutions would not open accounts for participants with incorrect address information.
DC Plan Sponsors can now report missing participants to the PBGC in one of two scenarios. They may be a “notifying plan” which transfers any remaining assets to a financial institution that is willing to accept them. After accomplishing this task, they simply file a form with the PBGC who will then notify the participant of the benefit when they are found.
The second option is that defined contribution plans may now become “transferring plans.” In this scenario, the assets of all missing participants are transferred to the PBGC and will be credited by the PBGC with a floating interest rate. To use this option, Plans must transfer all missing participants to the PBGC and cannot “cherry-pick” which participants to include in the program. They will also be charged a $35 per participant fee for all participants transferred with balances more than $250 and must again complete a required form.
In either scenario, Plans must always use reasonable attempts to locate participants before contacting the PBGC. Reasonable attempts include such items as checking all records on file, checking with any beneficiaries, conducting a paid location search (potentially via the internet), and using certified mail attempts to reach the participant.