Lost Participants and How to Find Them

Published:

by Stacey L. Spencer, QKA | Manager, Employee Benefits Group

One of the most aggravating issues facing employers and retirement plan practitioners is the issue of lost participants. Lost participants are terminated participants whose current address is unknown and who have a vested account balance remaining in the plan.

Lost participants are problematic because the issue:

  1. may increase the plan’s annual administrative expenses and fiduciary responsibility;

  2. may cause the plan to be subject to the audit requirement because the number of participants exceeds the large plan threshold; and

  3. may cause substantial delays in terminating a plan.

Therefore, employers need to be aware of the options available to resolve or minimize the lost participant problem.

Letter Forwarding Programs
Both the IRS and the Social Security Administration (SSA) offer a letter forwarding service. There is no direct communication between the plan sponsor and the terminated participant. Rather, the plan sponsor sends a letter with specified information to the IRS or the SSA. They will search their records using the social security number provided. If an address is located, the letter will be forwarded to the individual. The letter contains instructions as to what the recipient should do to contact the plan regarding their account balance. The drawback to these letter forwarding services is that neither the IRS nor the SSA will provide the sender any information regarding the results of its efforts. The plan sponsor will not know if the recipient could not be located. If there is a successful location, it is up to the terminated participant to communicate with the plan sponsor.

Private Locater Services
There are many private locater services that plan administrators may retain to assist in locating lost participants. The main advantages of using a private search company are speed and minimal cost. Often a search takes only a few minutes using the internet. Many practitioners have reported great success in using these services.

Finding a lost participant can be difficult and time-consuming. Yet, plan sponsors are required to make a diligent effort to locate missing participants. The longer you wait to locate someone, the harder the search may become. We suggest providing a Distribution Election Form during the exit interview process.