Today, many employers are faced with the difficulty of finding missing participants when terminating the employer's retirement plan. In light of this difficulty, the Retirement Protection Act of 1994 initially created the Pension Benefit Guaranty Corporation's (PBGC) missing participant program for terminated PBGC-insured, single employer defined benefit (DB) plans. The Pension Protection Act of 2006 authorized PBGC to expand the then existing program to handle the benefits of missing participants and beneficiaries under defined contribution (DC) plans, PBGC-insured multiemployer plans, and small professional service DB plans that the PBGC insurance program does not cover.
On September 20, 2016, the PBGC proposed new regulations seeking to further expand the existing missing participant program. The proposed regulations add three new missing participant programs for (1) DC plans, (2) PBGC-insured multiemployer DB plans, and (3) professional service employer DB plans that are not PBGC-insured. Currently, terminated DC plans can distribute missing participant benefits into: (1) an individual retirement account (IRA); (2) a federally insured bank account; or (3) escheat to state unclaimed property funds.
The revised program would be mandatory for PBGC-insured DB plans (including multiemployer plans), but would be voluntary for DC plans and DB plans that PBGC does not insure. PBGC anticipates that the program would be available in 2018 for plans that terminate in 2017.
The proposed regulation seeks the make the following changes:
- Imposed fees for participation. PBGC proposed a one-time $35 fee per missing participant/beneficiary with a benefit of $250 or more, payable when the plan pays the benefit transfer amount to PBGC.
- Enhance requirements for diligent searches. Plans would be required to search the plan's records, the employer's records (including those of an employer's other plans such as health plans), and conduct a no-fee internet search.
- Require plans to account separately for missed payments. The proposed rule would require plans to value missed payments by accumulating interest at a specified rate and to identify separately the “Plan make-up amount” upon submission to the PBGC. Under current rules, the amount transferred to PBGC by a plan, the “designated benefit,” includes both the present value of the future benefits, as well as missed payments of pay-status benefit. The current rule is not clear how plans should value missed payments or how PBGC can identify which portion of the amount transferred they represent.
- Terminated DC plans allowed to transfer benefits to PBGC. As an alternative to establishing an IRA at a financial institution for each missing participant or beneficiary, the proposed change would allow administrators of terminated DC plans to transfer benefits to PBGC. Alternatively, the administrator could send PBGC information about the location of missing participants' accounts (such as contact information for an IRA provider). The proposal would cover common types of terminated DC plans such as Section 401(k) plans, profit sharing plans, money purchase plans, target benefit plans, employee stock ownership plans, stock bonus plans, and Section 403(b)(7) plans. It would not cover governmental or church plans.