PBGC Expands Missing Participant Location Program To Include Defined Contribution Plans

On December 21, 2017, the Pension Benefit Guaranty Corporation (“PBGC”), an agency of the U.S. government that insures pension benefits of traditional defined benefit pension plans, issued a final regulation expanding its program to locate missing participants.  Effective January 1, 2018 employers that are terminating and closing down a defined contribution plan on or after the January 1 effective date, including 401(k) plans, will be able to utilize the program.

Background

The program is part of a series projects between the Department of Labor, the PBGC and the Internal Revenue Service to help plan sponsors locate missing participants at the time they are shutting down a retirement plan and making a final distribution of all the plan’s assets.  The issue of missing participants has been an ongoing concern for the agencies as American workers change jobs more regularly and frequently leave money in 401(k) or pension plans.  The PBGC already maintained a database to assist former participants in defined benefit plans search for unclaimed benefits.  The expanded program will include a combined database of both traditional pension plan benefits and defined contribution plan accounts that former participants can search to find out if they are owed any unclaimed benefits.

Program Eligibility

Prior to the expansion of the program, the ability to locate missing participants through the PBGC program was limited to single employer, traditional defined benefit pension plans that were covered under the PBGC insurance program.  Under the new rule, the following additional types of plans are eligible to utilize the program on a voluntary basis at the time that they are terminating and closing down their plan: 1) Defined contribution plans, typically 401(k) plans, of all organizations regardless of size. 2) Traditional defined benefit plans (or cash balance plans) of small professional services employers that are not covered by the PBGC insurance program. 3) Multiemployer plans, which are typically plans of unionized employees of unrelated employers.

Beginning in January, terminating defined contribution plans will now have the option of transferring missing participants’ benefits to the PBGC instead of establishing an IRA at a financial institution, which will result in the participant’s account balance not being diminished by ongoing maintenance fees or distributions fees typically charged by such institutions.  The PBGC will pay out the participant’s benefits with interest when the participant is found.

In addition, a “missing participant” will now be defined as an individual whose location the plan does not know with “reasonable certainty” (examples are provided by the PBGC).  The final regulation also provides more flexibility regarding the requirement to use commercial locator services for participants with very small account balances in traditional defined benefit plans.  The final regulation clarifies that plans sponsors do not need to use a commercial locator service if the participant’s monthly benefit under the plan is less than $50.

Program Mechanics

The PBGC has established a web page at https//www.pbgc.gov/prac/missing-participants-program.  Plan sponsors interested in utilizing the program may visit the site for additional information and to obtain the appropriate forms.

Conclusion

The expansion of the PBGC program should provide a welcome alternative to plan sponsors with missing participants in their terminating plans.