Pension plan sponsors owe a fiduciary duty to plan participants. As part of their fiduciary duty, plan sponsors must act prudently and run the plan solely in the interest of participants and beneficiaries. Some plan sponsors may forget that this duty extends to vested participants even after they leave the company, even if they cannot be found or are nonresponsive. Failing to locate missing participants or beneficiaries may be a breach of fiduciary duty and could potentially expose plan sponsors to liability..
Locating lost or missing participants to pay vested pension benefits can result in a significant administrative burden. This task can be further complicated due to the size of the company, high employee turnover, seasonal employees, name changes, and time. The ERISA Advisory Council has made several recommendations on methods of maintaining contact with participants and methods for finding lost participants that I will go over below.
Keeping in contact with participants after they leave the company is important because it can prevent participants from becoming “lost participants.” This includes “scrubbing” data periodically to determine which participants have inaccurate contact information on file. By comparing electronic plan records with another source of data, such as postal service records, plan sponsors can identify differences in a participant's address and make necessary updates.
Using multiple points of contact is another method for maintaining contact with participants after they leave the company. Home addresses, phone numbers, and even primary email addresses may change over time. Due to this fact, maintaining contact through multiple addresses, multiple phone numbers, and multiple email addresses, can increase the likelihood of maintaining contact if a participant does not respond to their primary method of contact.
A related issue involves lost pensions. Over time, plan sponsors may have changed, merged, or become acquired by other companies. Participants themselves may have a difficult time keeping track of plans in which they've participated. The recommendations suggested to help plan sponsors locate lost participants can also help address the problem of lost pensions.
Plan sponsors should also communicate the importance of maintaining accurate records to participants themselves. Plans should communicate the responsibility of participants and beneficiaries to update their plan representative when their contact information changes. This includes flagging participants with an incorrect address and requesting updated contact information when they call the plan or log-on to their online account. Printed benefit statements can also help notify participants of their need to make updates to their contact information or beneficiary designation.
Once a plan participant is nonresponsive or missing, it may take additional effort to locate the lost participant. Plan sponsors should use a multi-tiered and methodical approach to searching for lost participants. This may include comparing records of the lost participant to the National Change of Address (NCOA) database of the U.S. Postal Service, using a credit reporting bureau, using a commercial locator service, or manual internet search engine searches. If a plan sponsor discovers a conflict, a notice could be sent to both the new address and old address to increase the chance of contacting the participant.
Plan sponsors can also use the records of other employer-sponsored plans, such as health insurance or life insurance records, to find contact information. The contact information for plan beneficiaries or contingent beneficiaries can also be utilized to locate the plan participant.
Whatever steps the plan sponsor takes to locate participants may depend on the specific situation. Nevertheless, the plan fiduciary is responsible for determining whether sufficient steps were taken to locate and contact a plan participant. Failure to take adequate measures could be a breach of the plan sponsor's fiduciary duties, and expose them to liability.
Butterfield Schechter LLP is San Diego County's largest firm focusing its law practice on employee benefits. Our firm can help you maintain compliance with ERISA fiduciary duties, avoid ERISA penalties, and represent you in ERISA litigation. Contact our office today with any questions on how we can help you and your business succeed.