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Researchers realize that long-term retirement planning is not a natural act for most 401(k) plan participants. Consequently, important 401(k) plan features have evolved (ex. – auto enrollment, auto escalation, QDIA funds, etc.) to overcome the mis-match and to promote saving for retirement. Many of these features work spectacularly well – but only for as long as participants are actively participating in that plan.

Sponsors of active retirement plans are increasingly challenged by the problem of missing participants, and the difficulties they face in performing diligent searches.  After all, ensuring that plan participants (or their beneficiaries) receive the benefits they’re owed is a sponsor’s primary fiduciary responsibility.

On Earth Day 2019, as we focus on creating a sustainable and eco-friendly environment, it's worth considering how the application of similar principles would benefit our retirement system.  America’s 401(k) system is unsustainable – urgently requiring an upgrade to effectively deliver on its intended goal – helping millions of Americans enjoy a timely and comfortable retirement.  The good news is that we're beginning to see important signs of action that could ultimately address the problem.

The problem of missing participants continues to receive a great deal of attention from plan sponsors, industry advocates, regulators and politicians.  All parties are keen to address the negative outcomes that result when job-changing 401(k) participants leave behind their accounts with former employers, relocate and fail to update their address.

Research has conclusively demonstrated that retirement savings portability dramatically reduces 401(k) cashout leakage, preserves retirement savings and reduces the incidence of missing participants. With that in mind, it’s not surprising that recent retirement public policy activities are increasingly focused on various aspects of portability.

Retirement Clearinghouse (RCH) has released a new video “Addressing the Problem of Missing Participants.” The video integrates new research findings from the March 2018 study “The Mobile Workforce’s Missing Participant Problem” and provides viewers with the most-complete and factual summary of the problem, including:

Much has been written recently about the preponderance of lost and missing participants. This predicament, one of the many offshoots of the problem of too many small accounts, is an urgent one for sponsors to address given reports that the Department of Labor (DOL) is focusing on their ability to locate missing participants during plan audits.

When Ben Franklin coined the adage “an ounce of prevention is worth a pound of cure” he wasn’t considering the problem of missing participants, but 401(k) plan sponsors would be wise to heed Ben’s sage advice.  

Today, plan sponsors face an explosion of missing participants, driven by the ongoing adoption of auto enrollment and increasing workforce mobility.  Their problems are further compounded by the administrative burden required to locate them, combined with a regulatory minefield that offers little guidance and is prone to taking inconsistent enforcement actions.  

Despite differences big and small, all retirement plan sponsors and record-keepers experience at least one common problem—the seemingly intractable incidence of participants who have left behind small accounts in the plans sponsored by their former employers and failed to update their address when they subsequently change residence, a.k.a. missing participants.

In late 2017, retirement industry observers breathed a collective sigh of relief when “Rothification” of 401(k) plans, once considered as a part of new tax legislation, was abandoned.  With Rothification in the rear-view mirror, policymakers have begun turning their attention to other, more-promising initiatives.