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Field Assistance Bulletin 2014-01

April 28, 2015

Fiduciary Duties and

Missing Participants

in Terminated Defined

Contribution Plans

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How can the fiduciaries of terminated defined

contribution plans fulfill their obligations

under ERISA to locate missing participants

and properly distribute the participants’

account balances?

New Guidance was announced on August 14,

2014 by the DOL/ESBA

✓ ✓

New guidance, FAB 2014-01 replaces the

previous guidance issued 10 years earlier in

FAB 2004-02

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The prior FAB 2004-02 addressed the same issues...

What are the key differences

between the bulletins?

Internet search technologies have

since expanded and improved, and

the Department has codified its

enforcement safe harbor for

distributing missing participant

benefits to individual retirement plans

✓

The IRS and SSA have discontinued

letter-forwarding services for locating

missing plan participants since the

initial publication of FAB 2004-02

✓

Included are the suggestions from the

2013 ERISA Advisory Council,

including recommendations for

retirement plans and lost/missing

participants and beneficiaries

✓

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How does the FAB assist with the

termination of DC plans?

In our opinion, assistance comes from the more practical and bright-

line guidance contained in FAB 2014-01...

Plan fiduciaries now have a much easier and more effective “search

step” punch list to satisfy - together with very clear guidance on the

distribution option of choice.

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The FAB appears to be directed at terminating defined

contribution plans...

Do the provisions of FAB 2014-01 apply

to terminated defined benefit plans?

No. This guidance does not apply to missing participants in a

terminated defined benefit plan.

The Pension Benefit Guaranty Corporation (PBGC) has a missing

participants program for terminated DB plans subject to PBGC

coverage.

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Under FAB 2014-01, the following

are the search requirements for

missing participants...

Use Free Electronic

Search Tools

Use Certified Mail Check Related Plan and

Employer Records

Check with Designated

Plan Beneficiary

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What are the options available

to a fiduciary if a participant

cannot be found?

Open an interest-bearing

federally insured bank

account in the name of the

missing participant

2

Distribute the missing

participant’s account into an

IRA per 2550.404a-3

1

Transfer the account balance

to a state unclaimed property

fund

3

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What are the options available

to a fiduciary if a participant

cannot be found?

A few considerations...

Interest that accrues after the transfer

would be subject to income taxation upon

accrual. These tax consequences reduce

the amount of money available for

retirement

2

Unlike tax-free rollovers into an individual

retirement plan, funds transferred to a

bank account or state unclaimed property

fund are subject to income taxation,

mandatory income tax withholding and

possible additional tax for premature

distributions

1

In most cases, a fiduciary would violate

ERISA section 404(a)’s obligations of

prudence and loyalty by causing such

negative consequences rather than making

an individual retirement plan rollover

distribution

3

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In the presence of such strong

language, it is clear that the

rollover IRA is by far the

distribution option of choice...

The use of any other option will

almost always result in a breach of

fiduciary duty under ERISA.

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