On December 22, 2017, the Pension Benefit Guaranty Corporation (PBGC) issued final regulations in connection with its program for maintaining retirement benefits on behalf of terminated benefit plans for missing beneficiaries and participants.
The purpose of this regulation is to enhance the program by expanding it to include:
- Defined contribution plans;
- Multiemployer plans; and
- A specific group of plans not covered by ERISA Title IV.
Previously this program was limited to single employer pension plans.
Additionally, the new regulations simplify the rules by repealing unnecessary provisions and allows the PBGC to charge an administrative fee.
The final rule does not apply to participants in connection with plans terminated prior to December 31, 2017. This final regulation is scheduled to be effective January 22, 2018. Historically, single employer defined benefit plans paid a fee (insurance) to the PBGC for administration of the pension plan termination insurance program which is governed under the Employee Retirement Income Security Act of 1974 (ERISA). Before a plan can formally terminate, all plan assets must be distributed.
One of the challenges for plan administrators is locating remaining participants and beneficiaries so the balance of plan assets can be distributed. The PBGC has issued guidance for plan administrators to locate missing participants and methods for how benefits should be computed, however, guidance had been lacking for defined contribution and multiemployer plans. In 2014, the Department of Labor issued guidance for defined contribution plans in field assistance bulletin (FAB) 2014-01 which included steps that administrators should take to search for missing participants and distribution options.
The PBGC received 14 comment letters on the initial proposed rules and as a result, a few changes were made to the final guidance. Although the requirements are the same across plan type, the regulation is divided into subpart A through D depending on the nature of the plan:
- Subpart A – Single Employer DB Plans
- Subpart B – DC Plans
- Subpart C – Small professional service DB Plans
- Subpart D – Multiemployer Plans covered by Title IV
Key Features of the Missing Participant Program
- Authorized Expansion of the Program: The new program includes defined contribution plans (previously excluded which called for plan sponsors to go through the administrative burden of setting up individual IRA accounts) and is also extended to multiemployer plans and small professional service defined benefit plans previously not covered under ERISA.
- Unified and more comprehensive database including a centralized directory.
- Provision for a one-time administrative fee paid to the PBGC of $35 per missing distributee. This charge would be payable when the benefits are remitted to the PBGC. There would be no ongoing maintenance fee or distribution fee. Additionally, no fees would be due for any missing distribute entitled to a benefit of $250 or less.
- Streamlined procedures and enhanced flexibility for finding missing participants
- Expansion of the definition/criteria for “missing participant” (the new rule uses the term missing distribute as to not differentiate or cause confusion by using the words “participant” and “beneficiary”). The final rule notes that a condition to be missing is that the plan does not know with reasonable certainty where a distribute could be found. Lump sum recipients with uncashed checks by the “cash by” date would qualify as missing (regardless if the distribution was an election or mandatory cash-out provision).
- A diligent search is required and the rules clarify what a diligent search would consist of, which is explained below:
- For DC Plans, plan administrators must perform a diligent search using one of two methods: (1) using a commercial locator service or (2) a records search which involves the use of internet search tools, credit reporting agencies and other search methods available.
- For DB Plans, plan administrators must perform a diligent search one of the two methods, however, for DB plans, the regulations identify five specific search options, of which the first four qualify as part of the records search method: (1) leverage information from the terminating plans, (2) utilize information from the sponsoring employer, (3) utilize information from other plans of the employer, for example Health and Welfare Plan, (4) internet searches involving no or low fees, and (5) use a commercial locator service. If a distribute has an extremely small benefit ($50 per month or less), the cost/benefit of using a commercial locator service would not be beneficial, therefore, for benefits of the aforementioned amount, this option is not required.
The diligent search must be completed within nine months before the last distribution to a non-missing distribute or within nine months before the benefits are transferred to the PBGC.
The regulation also includes a further explanation on the amounts to be transferred, types of benefits to be paid, forms to be filed including deadlines. The PBGC notes that it is relying on information provided by the terminating plans and respective sponsors and it accepts that information as is, therefore they have removed from the final regulation the provisions which dealt with audits and associated areas.
The overall goal of the new rules is to provide increased opportunity for missing distributes (participants and beneficiaries) being found and receiving the benefits which they are entitled to, and reduce the burden on plan administrators. For additional information about the program and the new guidance visit the PBGC’s website, or contact a member of Withum’s ERISA Services Group by filling out the form below to discuss how these new regulations may impact your plan and plan administration.
Author: Jessica Offer, CPA | [email protected]
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