Lost and Found: New Program Helps Workers Reclaim 401(k) Funds

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Amid concerns that workers aren’t saving enough for retirement, a new government program holds out the prospect of reuniting workers with forgotten funds in 401(k) plans that employers shut down.

Under the program announced by the Pension Benefit Guaranty Corporation in December, any 401(k) or other defined contribution plan that terminates on after Jan. 1, 2018, has the option to deposit plan assets with the PBGC. Once the money is deposited, the PBGC will add the account owners’ names to an online searchable directory and will also periodically search for those people.

When the PBGC finds missing participants through the program, it will pay them benefits plus interest.  The agency estimates that this could amount to an additional $19 million in recovered benefits each year.

When a defined contribution plan closes, the money of missing participants is typically deposited in an individual retirement account administered by a bank and could eventually escheat to the state.

Historically, the PBGC has only sought to protect participants in traditional defined benefit pension plans, while largely steering clear of involvement with defined contribution plans.

“The fact that the PBGC is doing this is a significant positive and should have been done years ago,” Sanford Rich, executive director of the New York City Board of Education Retirement System, told Bloomberg Law.

Rich had a ground-floor view of the emerging missing participants program while serving as chief of negotiations and restructuring at the PBGC from 2012 until 2016.

He sees the program as a win-win for plan sponsors and missing participants. “Having these accounts sit idle at the plan sponsor is costly to maintain, while surrendering the monies to a bank for safekeeping runs the risk that the bank’s fees for handling the account will deteriorate the balances,” he said.

Transferring Plans Must Go All-In

A terminating defined contribution plan can participate in the program either as a “transferring” or a “notifying” plan. A transferring plan is one that sends benefit amounts of missing participants to the PBGC, while a notifying plan simply informs the PBGC of how it is disposing of missing participants’ assets.

A “transferring plan” cannot cherry-pick which accounts it sends to the PBGC. Rather, it must deposit all accounts of missing participants with the agency. The agency said this is to avoid a situation in which “larger accounts that can generate larger maintenance fees for commercial individual retirement plan providers might be turned over to private-sector institutions that charge asset-based fees.”

When Is Someone ‘Missing?’

Under the program, someone who has unclaimed plan funds is “missing” when the plan doesn’t know with reasonable certainty the location of the participant; the participant hasn’t elected a form of distribution in response to a distribution notice; or the participant refuses to accept a lump-sum distribution from the plan. The same would hold true for beneficiaries who become entitled to the assets in a missing participant’s account

Lump-sum cash distributions fall in the category of “not accepted” if checks remain uncashed for a certain amount of time. For example, this would apply when a “cash-by date” of at least 45 days has expired.

Cost to Plans

In general, terminating plans in the program will be charged a one-time $35 fee per missing plan participant or beneficiary, payable when the plans transfer benefits to the PBGC.

However, the PBGC won’t charge a fee for amounts transferred of $250 or less. Plans also will not be charged a fee for simply sending PBGC information about where benefits are held.  The PBGC also will not charge plans a continuing account maintenance fee or a distribution fee.

A statement of fees is included in program forms and instructions posted online by the agency.

Diligent Search Required

Prior to depositing missing participants’ accounts with the PBGC, the plan must search for each participant whose location it doesn’t know with reasonable certainty.

“Terminated plans can’t simply surrender the accounts to the PBGC without first trying to search for the account owners,” Rich said. “Labor Department regulations outline what a plan sponsor must do to find participants who have walked away from their account balances or had benefit checks returned. These are pretty significant, explicit  minimum search requirements,” he said.

The search must be conducted within nine months before the plan alerts the PBGC that a participant is missing, according to the rule.

Don’t Leave It to the Government

Apart from the required searches, plan sponsors and missing participants should avail themselves of publicly available listings of abandoned assets, according to Rich.  Among organizations that help consumers find missing assets is missingmoney.com, which is administered by the National Association of Unclaimed Property Administrators.

While missingmoney.com is not a complete listing of abandoned money, because some states do not participate in this centralized repository of escheated assets, the missingmoney website has a list of related links that includes the PBGC Missing Participants Program, as well as listings maintained by the FDIC and the IRS, among others. 

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