Field Assistance Bulletin 2014-01

Field Assistance
Bulletin 2014-01
April 28, 2015
Distributions Made Simple.
Fiduciary Duties and
Missing Participants
in Terminated Defined
Contribution Plans
How can the fiduciaries of terminated defined
contribution plans fulfill their obligations
under ERISA to locate missing participants
and properly distribute the participants’
account balances?
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New Guidance was announced on August 14,
2014 by the DOL/ESBA
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New guidance, FAB 2014-01 replaces the
previous guidance issued 10 years earlier in
FAB 2004-02
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The prior FAB 2004-02 addressed the same issues...
What are the key differences
between the bulletins?
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The IRS and SSA have discontinued
letter-forwarding services for locating
missing plan participants since the
initial publication of FAB 2004-02
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Internet search technologies have
since expanded and improved, and
the Department has codified its
enforcement safe harbor for
distributing missing participant
benefits to individual retirement plans
Included are the suggestions from the
2013 ERISA Advisory Council,
including recommendations for
retirement plans and lost/missing
participants and beneficiaries
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How does the FAB assist with the
termination of DC plans?
In our opinion, assistance comes from the more practical and brightline guidance contained in FAB 2014-01...
Plan fiduciaries now have a much easier and more effective “search
step” punch list to satisfy - together with very clear guidance on the
distribution option of choice.
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The FAB appears to be directed at terminating defined
contribution plans...
Do the provisions of FAB 2014-01 apply
to terminated defined benefit plans?
No. This guidance does not apply to missing participants in a
terminated defined benefit plan.
The Pension Benefit Guaranty Corporation (PBGC) has a missing
participants program for terminated DB plans subject to PBGC
coverage.
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Under FAB 2014-01, the following
are the search requirements for
missing participants...
Use Certified Mail
Check Related Plan and
Employer Records
Check with Designated
Plan Beneficiary
Use Free Electronic
Search Tools
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What are the options available
to a fiduciary if a participant
cannot be found?
1
Distribute the missing
participant’s account into an
IRA per 2550.404a-3
2
Open an interest-bearing
federally insured bank
account in the name of the
missing participant
3
Transfer the account balance
to a state unclaimed property
fund
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What are the options available
to a fiduciary if a participant
cannot be found?
A few considerations...
1
Unlike tax-free rollovers into an individual
retirement plan, funds transferred to a
bank account or state unclaimed property
fund are subject to income taxation,
mandatory income tax withholding and
possible additional tax for premature
distributions
2
Interest that accrues after the transfer
would be subject to income taxation upon
accrual. These tax consequences reduce
the amount of money available for
retirement
3
In most cases, a fiduciary would violate
ERISA section 404(a)’s obligations of
prudence and loyalty by causing such
negative consequences rather than making
an individual retirement plan rollover
distribution
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In the presence of such strong
language, it is clear that the
rollover IRA is by far the
distribution option of choice...
The use of any other option will
almost always result in a breach of
fiduciary duty under ERISA.
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Why Choose PenChecks?
PenChecks, the #1 Choice for
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Distribution Services...
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We Make Distributions Simple.
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