Guidance on Missing Participants Listed on IRS Priority Guidance Plan

Guidance about how to deal with missing participants and uncashed checks has been issued piecemeal over the years.

On November 17, the Department of the Treasury issued its 2020-2021 Priority Guidance Plan.

The 2020-2021 Priority Guidance Plan contains guidance projects that will be the focus of efforts during the 12-month period from July 1, 2020, through June 30, 2021. Under the section for retirement benefits, it lists “Guidance on missing participants, including guidance on uncashed checks.” Such guidance would be welcomed by retirement plan sponsors.

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In 2018, the Plan Sponsor Council of America (PSCA), a part of the American Retirement Association (ARA), requested additional guidance on how retirement plan sponsors should handle missing participants. The request was in response to increased Department of Labor (DOL) enforcement activity.

In a statement, the PSCA explained that it first requested in April 2017 additional guidance from the IRS and DOL regarding various Internal Revenue Code and Employee Retirement Income Security Act (ERISA) compliance issues that arise when there is a missing or nonresponsive participant and proposed a sample safe harbor plan. “Since this request, there have been numerous reports of aggressive DOL enforcement activity, and sometimes inconsistent positions taken by DOL auditors, regarding how plan sponsors are handling missing participants,” the statement said. “We have heard concerns from our plan sponsor members that they have been or may be subjected to enforcement actions even though the DOL and IRS have not issued comprehensive guidance on missing participants that provide a clear roadmap for compliance.”

Guidance from regulators about missing participants and uncashed checks has been piecemeal. Recently, the IRS issued two pieces of guidance related to the transfer of retirement plan accounts to state unclaimed property funds. However, no guidance has stated that transferring retirement plan assets to state unclaimed property funds is permissible in the first place.

In a 2017 memorandum for Employee Plans (EP) examination employees, the IRS listed actions plan sponsors should take to locate missing participants in order to avoid being challenged on violating required minimum distribution (RMD) rules.

In 2014, the DOL issued a Field Assistance Bulletin addressing ways fiduciaries of terminated defined contribution (DC) plans could fulfill their obligations under ERISA to locate missing participants and properly distribute the participants’ account balances. The FAB eliminated the requirement in FAB 2004-02 to use the discontinued IRS letter-forwarding service or the Social Security Administration (SSA) letter-forwarding service.  In their place, the required search steps have been expanded to include the use of electronic search tools that do not charge a fee.

The retirement plan industry will have to stay tuned to see if more comprehensive and consolidated guidance is issued by the IRS.

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