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.

Beginning in 2000 and continuing for a decade, American consumers were overtaken by “bacon-mania” – an obsession with the tasty, fried cured-pork treat that included cookbooks, exotic new products and a catchy slogan: “Bacon Makes Everything Better.” Great all by itself, bacon was hailed as having the added virtue of improving the taste of almost any dish it was added to.

Two weeks ago, I authored an article applauding the American Benefits Council for their October 2^nd, 2017 letter to the Department of Labor (DOL), which clearly identified the root causes of missing participants: a highly-mobile workforce and a lack of retirement savings portability. Extending the Council’s insight, I maintained that what’s really “missing” in our defined contribution system are initiatives that move retirement savings forward when participants change jobs, such as auto portability. When implemented, these initiatives could serve to dramatically decrease the overall incidence of missing participants.

This video presentation is designed to give the viewer a basic understanding of the principles of locating missing participants in 401(k) plans. 

What is a Missing Participant? 

In November of 2015, Congress enacted the Federal Civil Monetary Penalties Inflation Adjustment Act Improvements Act to apply inflation adjustments to various penalties defined under the Federal Civil Inflation Adjustment Act of 1990. One of those penalties was the $10 per employee penalty for failure to furnish reports to certain former participants and beneficiaries or maintain records. The new penalty, as published in the Federal Register (Table C), is now $28 per employee, effective August 1, 2016.

In his September 2^nd, 2015 MarketWatch article One Solution to Three Costly Retirement-Saving Mistakes, RCH’s CEO Spencer Williams provides insight as to why a majority of Americans are not very confident in their retirement readiness. Three costly mistakes consistently plague retirement savers:  1) leaving 401(k) accounts behind when changing jobs, 2) prematurely cashing out and 3) not informing prior employers’ retirement plan record-keepers about address changes.