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Avoiding Improper Retirement Plan Distributions: The DOL and the Good, the Bad and the Ugly

by | Aug 18, 2022

By Mike McWherter, JD
Chief Compliance Officer
PenChecks, Inc. / PenChecks Trust®

One of the challenges of administering a retirement plan is the timely and proper payment of distributions to plan participants. This responsibility occurs in more than one context, and can have a number of “facts and circumstances” variations. It’s not limited to the context of participants who have recently retired and for whom the plan sponsor has good contact information. Frankly, that scenario is as easy as it gets.

More complicated situations include:

  • Missing or non-responsive participants with less than a $5,000 balance in their retirement account. Plan sponsors most likely need to get these participants out of the plan. They increase the plan sponsor’s risk and liability, and typically cause increased fees for the plan and the plan sponsor.
  • Retired participants, at or beyond normal retirement age, who have not started receiving their retirement benefits.
  • Deceased participants in Defined Benefit plans.
  • Uncashed/unclaimed distributions. This is similar to lost/missing participants but with a twist –there is no published regulatory guidance in this context. Regardless, the U.S. Dept. of Labor (DOL) has steadfastly maintained that the uncashed check of a missing or non-responsive participant remains an ERISA-covered plan asset.

Missing/Non-responsive Participants

Field Assistance Bulletin 2021-01

A temporary enforcement policy from the DOL for defined contribution plans (think 401(k) plans) using the Pension Benefit Guarantee Corporation’s (PBGC) Missing Participant Program. This says that plan fiduciaries and QTAs may use the PBGC’s program in addition to the safe harbor rollover distributions described in 29 CFR 2550.404a-3. When they do, the DOL will not pursue violations under section 404(a) of ERISA against either responsible plan fiduciaries of terminating defined contribution plans or QTAs of abandoned plans.

A nice offer but consider this – while the DOL will not pursue any relevant 404(a) violations, that is not the same as the regulatory safe harbor under 404a-3. Moreover, this FAB and the PBGC program are not turn-key solutions to the issue. A plan sponsor would still have to satisfy the search and notification requirements.

A more efficient, less burdensome solution for plan sponsors, advisors, TPAs and financial institutions would be to engage a service that provides one-stop shopping and satisfies all of the search, notice, direct or rollover distribution steps, tax withholding/remitting/reporting, and related requirements. PenChecks offers all of this and more. And it’s all compliant with DOL guidance.

Compliance Assistance Release (CAR) 2021-01

The DOL’s Employee Benefits Security Administration (EBSA) has 10 regional offices and three district offices. CAR 2021-01 serves two purposes. It provides an internal guide for DOL personnel conducting Terminated Vested Participant Project (TVPP) audits to help ensure the regional and district offices maintain consistent standards and procedures when performing these audits. It also lets plan sponsors and their retirement plan service providers know what to expect in such audits. Very helpful indeed, and excellent information for the items covered in the CAR.

“Missing Participants – Best Practices for Pension Plans”

This is perhaps the most informative piece of guidance of the three as it provides a number of practical, helpful red flags to watch out for and “best practices” for dealing with the various flavors of missing participants.

As the DOL states in its Best Practices, the first step in addressing any problem is knowing it exists. Here are the red flags to watch out for:

  • More than a small number of missing or non-responsive participants.
  • More than a small number of terminated vested participants who have reached normal retirement age but have not started receiving their pension benefits.
  • Missing, inaccurate, or incomplete contact information, census data, or both. This includes incorrect or out-of-date mail, email, and other contact information, partial social security numbers, missing birthdates, missing spousal information, or placeholder entries.
  • Absence of sound policies and procedures for handling returned mail marked “return to sender,” “wrong address,” “addressee unknown,” or otherwise, and undeliverable email.
  • Absence of sound policies and procedures for handling uncashed checks. This can include the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks, or failure to reclaim stale uncashed check funds in distribution accounts.

These are great red flags. But the challenge is that plan sponsors are in the business of whatever their business is. They and their staffs are usually not well-versed in the administration of retirement plans, and particularly not so when it comes to satisfying the various requirements of searching for, locating, notifying, processing direct or rollover distributions, and the related tax withholding/remitting/reporting requirements at both federal and, as applicable, state levels.

The DOL then provides four categories of best practices, not all of which necessarily apply to all plans. However, checking the DOL’s list makes it obvious that many of the best practices should routinely be employed by virtually all plans or their service providers:

  1. Maintaining accurate census information for the plan’s participant population.
  2. Implementing effective communication strategies.
  3. Documenting procedures and actions.

Missing Participant Searches

There is one category of DOL best practices I want to focus on – missing participant searches. With apologies to Sergio Leone and Clint Eastwood, here’s “The Good, the Bad and the Ugly”.

The Good:

  • Check related plan and employer records (if you can get them) for participant, beneficiary and next of kin/emergency contact information.
  • Use online search engines – if you know what you’re doing; there’s a lot of incorrect information out there.
  • Use commercial locator services, they are effective and cost-efficient if done correctly.
  • Attempt contact via certified mail.
  • Use a death audit service.
  • Use email, but you must verify their identity before disclosing any non-public or personally identifiable information.
  • Register missing participants on freely available pension registries with privacy and cyber security protections such as the National Registry of Unclaimed Retirement Benefits (NRURB) – a rare endorsement of a private sector solution. Full disclosure, the NRURB is powered by PenChecks, Inc., my employer, and we are very proud and humbled that the DOL would recognize our efforts here.

The (potentially) Bad and the Ugly:

  • Use online search engines (see above). If you know what you’re doing, fine. But if you/your staff do not have experience with this the Internet can lead you on wild goose chases.
  • Use social media. No, just no. That is a ripe invitation for fraudsters and other bad actors to engage in both identity theft and account theft, not to mention potential violations of various states’ privacy laws. So you gotta ask yourself, do you feel lucky? Well, do you . . . Oops sorry, that’s another movie.
  • Credit reporting agencies. These agencies are great for their intended purpose but can be expensive for finding missing participants

If your plan – or plans if you’re a TPA, advisor or institutional provider – has missing participants and your staff has the time and expertise to identify and undertake the best practices above that apply to your situation and resources, then you are in a relatively better position to mitigate your risks associated with missing participants.

But if you’d rather outsource it to a service provider with 28 years’ experience with a dedicated staff and proven track record, then give PenChecks a call. We’re here to help and we know how.

Mike McWherter JD, is Chief Compliance Officer for PenChecks, Inc. and PenChecks Trust Company of America, a leader in outsourced retirement plan distribution processing and Automatic Rollover/Missing Participant IRAs and related services. With 30 years of combined legal, financial institution and ERISA plan provider compliance experience, he provides guidance and oversight for all compliance matters, supervises regulatory exams and audits, and coordinates between outside counsel, management and the board of directors.



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Each year, approximately five million Americans with small retirement accounts (currently defined as having balances of less than $7,000) change jobs – and at that point are forced to make a decision.

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Take it or Leave it

Each year, approximately five million Americans with small retirement accounts (currently defined as having balances of less than $7,000) change jobs – and at that point are forced to make a decision.


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