Defined Benefit plans face daily administrative struggles, including growing structural complexity, administrative changes, digital maintenance, possible outdated software, bad plan data, and a host of other challenges. Bad participant addresses and contact information are among the less exciting and hard-to-fix items of plan data, yet without regular maintenance, they could render all other aspects of pension administration irrelevant. It is imperative that defined benefit plans keep good participant address information on file as several notices are required to be mailed out regularly. For example:
- Plan changes that must be communicated
- Termination processing
- Normal retirement date election packets
- Required Minimum Distributions
- Benefit statements
- Pension payments
- Annual Funding Notices
- Other special plan projects that would require valid participant addresses (lump sum windows and plan terminations)
Missing participants are varied and can include those who are unaware they have a benefit; those who forget they need to keep their address updated with the plan sponsor; deceased participants; and those who are just unresponsive. It is important to try to locate these participants and to track your attempts. Doing so can prevent administrative burdens, avoid increased plan costs down the road, and even escape becoming a fiduciary risk. Lost participants are more of an issue when they are near or at a distributable event (e.g., Normal Retirement Date or Required Minimum Distribution date), at which point, the Internal Revenue Service is looking to collect on deferred taxes or the Department of Labor (DOL) is more interested in ensuring participants receive their benefits. Additionally, missing participants can become an issue for plan sponsors during audits when plan policies and procedures can come under scrutiny. It is common for DOL audits to focus on missing participants, which can drag on for several years if the DOL is not satisfied with the efforts made to locate them. Plans suffer because of missing participants. Likewise, participants themselves may be missing out on benefits, may not be properly informed of plan changes, or may forget about their benefits entirely.
How information is stored
Every plan administrator has ways of keeping and storing participant information. It’s important to employ a system that works and that can be easily tracked by anyone who has access to the plan and its participants. Usually, a plan administrator will be made aware of bad addresses by the participants themselves, returned mail, or the plan sponsor. It is easiest to maintain addresses when the bad address is reported, which can be as simple as making a change in the system and then notifying the plan sponsor of the change. Challenges increase when mail is returned with no forwarding address. This may be more difficult for larger plans that have to deal with multiple bad addresses at one time; for example, after a mass mailing such as the Annual Funding Notice.
To locate participants, individual address searches can be conducted as returned mail is received using an industry-recognized vendor such as PBI or The Berwyn Group. When working with a larger population, these vendors may also be able to perform bulk address searches, which typically require a spreadsheet containing participant names, SSNs, and birth dates, (file formats and turnaround times differ by vendor).
Working with plan sponsors to maintain information for active and terminated participants
Keeping good addresses also requires the plan sponsor to know the types of participants in the plan, since active participants and terminated-vested participants may be handled differently than retirees. Active employees are much easier to maintain as the employer should have good addresses on file or be able to contact employees easily if there is a problem. For these reasons, the plan sponsor is usually responsible for maintaining addresses for active participants, many of whom can be reached via internal email. To ensure that the most current addresses are on file, it is advisable to regularly update electronic data files received from the plan sponsor. Depending on the size of the population and the number of updates made to the data, these updates may need to be made as often as biweekly or as infrequently as quarterly. We recommend that the data be refreshed no less than annually.
Terminated-vested participants may be more difficult to locate as they are typically no longer with the company and often do not keep the plan sponsor informed of address changes. For this reason, the plan administrator is usually responsible for maintaining address data for terminated-vested participants. The recordkeeping system should have the ability to store current addresses and to track participants with bad addresses on file. Sometimes, the plan sponsor may still have a participant’s phone number or other contact information in their records, which may help when all other avenues have been exhausted. However, if nothing is left behind, these participants may fall into the missing category and require further action, such as retaining an address locator service. The address locator service should be performed at least annually and tracked for documentation in case of an audit.
Working with the trustee for maintaining retiree information
Retirees are sometimes easier to locate because they’re currently receiving payments. The plan’s trustee may have current address information, so a simple call or email could resolve the problem. In some cases, a simple address search won’t be enough. Some retirees may, in fact, be deceased. Locating an obituary or death record is important in such cases as payments must either be stopped or transferred to a beneficiary.
Resources for finding a better address:
A plan sponsor can easily find resources to help locate missing participants. It may be necessary to pay for a locator service as an attempt to find lost participants (such costs are usually payable from the pension trust). A low-cost automated search performed yearly can help keep the addresses well-maintained. If participants are nearing a distributable event or need to be located for a special project, multiple options are available to intensify the search. Once a search has produced a new address, a verification letter or other mailing should be sent to determine whether it comes back as undeliverable.
A plan termination will require additional DOL-mandated steps to locate lost participants, including USPS Certified Mail (rules for performing a “diligent search” are outlined in ERISA Section 4050.304). Other address locator services include Intelius, PBI, the Berwyn Group, and whitepages.com. Some plan administrators now search for participants on social media websites, although such efforts can be time consuming with hit-and-miss results.
As the world becomes more interconnected, electronic disclosures will play a larger role in the administration of defined benefit plans. Email is cheaper and faster than traditional print mailing and can be easily sent out to large groups. The Employee Benefit Security Administration of the DOL has published a final rule on the use of electronic media. A summary of the final rule can be found here. “The DOL’s stated objective is to update ERISA’s electronic delivery rules for required disclosures to better leverage ongoing improvements in online and mobile-based technology and communications and to provide a structure that will be appealing to the workforce.” Soon, we will see a trend of more plan administrators heading down the electronic disclosure path.
Different methods of address maintenance work for different plan sponsors. It is important to keep in mind that participant addresses must be maintained regularly, if not constantly, in order to ensure that participants are kept informed and that plan sponsors are reducing the chance for potential burdens due to badly kept data.