Best Practices for Managing Participant Data

Plan sponsors could save a lot of time, expense and stress by implementing a thorough system for managing participant data. Having the appropriate procedures in place can limit potential liability in an audit. Most companies don’t realize the pertinence of maintaining adequate, compliant records until there is a need.

Practicing good recordkeeping is nothing new, as ERISA has declared it a fiduciary responsibility from the beginning. Now, both the Department of Labor (DOL) and the Internal Revenue Service (IRS) are focusing on the requirement of locating missing participants. That makes it even more critical to not wait until an audit to start properly managing your data. Below are a few practical steps to locate missing participants (and beneficiaries). In addition, automatic rollovers can help plan sponsors ensure accurate participant records.

Practical Steps for Participant Data Management

A proper participant data management process includes:

1. Regularly updating participant and beneficiary contact information
   • Include reminders in participant communications to encourage participants of advising plan sponsor and recordkeeper of any changes
2. Identifying multiple points of contact for each record
   • Mailing addresses, phone numbers, emails, etc.
   • Include next of kin/emergency contact information
3. Establishing a search process system
   • Documenting steps taken for locating missing/unresponsive participants
4. Having procedures in place for managing accounts of missing participants

When working with a recordkeeper or TPA, it is good practice to review their process of finding missing participants and confirming when distributions are required and managing uncashed checks.

How to Find Missing Participants and Beneficiaries

When you have outdated or lost data, it is necessary to take the appropriate measures to find and identify missing participants and beneficiaries in order to notify them of plan changes or distributions. Be sure to document each of your actions and the results.

The IRS has suspended the letter forwarding services it previously used to help locate missing plan participants. To continue assisting in your location effort, the IRS and DOL have published guidance that include:

• Send a notice by certified mail to the last known mailing address
• Send an inquiry to the designated plan beneficiary
• Send notice to personal email address(es), phone numbers, and emergency contact phone numbers on file
• Use internet search tools and public record search engines
• Do research through credit reporting agencies
• Use commercial locator services

If a participant is still not located after thorough search efforts, there are options permitted by the DOL for transferring their balance in the plan, including rollover to an IRA.

Reduce Participant Management Tasks with Automatic Rollovers

For retirement plans, an automatic rollover occurs when a plan sponsor transfers qualified retirement funds into a Safe Harbor IRA. This retirement account invests funds in a money market account or a low-risk equivalent. Automatic rollovers affect former employees with small balances (<$5,000). Employees who have large accounts after termination can maintain their investment funds in the company plan.

While this move requires no action by the plan participant, this does not mean it is their only option. Companies must give each rollover participant a 60-day notice along with mandatory disclosures and reinvestment instructions. Before that time is up, the former employees can opt to roll over the funds into a different account or take a cash distribution.

An automatic rollover can minimize risk and responsibility for small accounts that still require the same amount of maintenance, recordkeeping and data management as large ones. The rollover can also lower plan administrative costs for both the sponsor and the participant. For the terminated participant, the benefit is preserving the funds through another tax-deferred vehicle – although the low risk does not enable significant growth.

PlanPILOT Can Help Keep Participant Data on Track

Periodically reviewing plan documents and implementing a detailed participant data management process can assist in keeping participant information up to date and will help your organization prepare to stay on top of the administrative and regulatory challenges as a plan sponsor. Enlisting the help of a qualified retirement plan consultant is beneficial to plan sponsors and their plan participants. As an independent Registered Investment Advisor, PlanPILOT is not tied to any investment fund or recordkeeper. We offer clients unbiased advice and assistance to control their retirement plan risks and deliver benefits effectively. We encourage you to contact us at (312) 973-4911 or info@planpilot.com so we can help your retirement plan administration team and plan participants achieve better outcomes.

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