Addressing Missing Participants: The Why and the How

Spring cleaning is well underway. But that need not be limited to closets, kitchens, and garages—it can serve retirement plans and their administrators too. And one such prime function is addressing missing participants. 

Missing participants—former employees whose benefits remain in the plan but who cannot be contacted or don’t respond to communications—are a headache for a variety of reasons. For a retirement plan, they create administrative burdens, make distributions difficult, and pose fiduciary and audit risks; for participants and their beneficiaries, they spell lack of access to plan benefits and lost revenue. 

And this is not an isolated phenomenon. Definiti reports that there are estimates that every year, tens of thousands of participants lose track of their savings in defined contribution plans. 

Mike Irey, Director of Operations and Client Services for the Berwyn Group, in an April 16, 2024 webinar on pension management that focused on handling missing participants, similarly indicated that they are not unusual. Irey said that “inaccurate participant information is common” and that 30% to 40% of plan records need to be updated. Lindsey Tate McDonald, Director of Project Revenue for the Berwyn Group, concurred, remarking that on average, one-third of participant information needs to be updated.

Consequences

Missing participants can pose serious problems and risks for a plan and its sponsor, Definiti warns, such as: 

• distributing retirement benefits regardless of whether former employees completed and returned requisite forms;
• inclusion of missing participants in census data;
• increasing plan costs; and 
• risking a compliance audit and possible penalties.

They also have consequences for individuals, says Definiti. For instance, if a past participant is "missing," that person may have surrendered some of their financial security due to lost access to retiremetn savings; he or she also will have foregone opportunities for investments to have grown as much as they could have. And that former employee could also experience complications in performing estate planning and in distributing benefits to beneficiaries after a participant dies. 

Why Does This Happen?

Missing participants arise for a variety of reasons. Definiti says they result from participants who failed to take actions that would keep the plan sponsor well-informed, such as: 

• update contact information after they stopped working;
• let the plan sponsor or administrator know of their new address if they moved;
• let the plan sponsor or administrator know if their name changed;
• pay attention to communications about their retirement benefits from the plan sponsor or administrator;
• seek a distribution; or
• inform the individuals they named as beneficiaries and died before informing them. 

Irey discussed finely detailed information that could have changed, resulting in missing participants, such as: 

• Social Security numbers;
• first and last names;
• addresses; and
• phone numbers.

But big-picture, broad-scale developments can lead to missing participants as well, Irey and McDonald indicated, such as:

• if a plan inherited other plans;
• if a merger has taken place;
• if a plan has older files that are in paper form or microfiche; and
• lack of access to decedent data.

Action Steps 

There are a variety of steps a plan sponsor, and administrator can take to find missing participants and head off the problems they create and risks they pose.

Use obituaries. Obituaries are a source of information to which plan sponsors and administrators can turn, Irey said, which can be useful because: 

• there is a 95% chance of finding first-degree relatives;
• there is an 80% chance of finding spouse information; and 
• they provide information for up to 15 first-degree relatives.

However, Irey indicated that obituaries are not a panacea. He noted that there can be factors that mitigate their usefulness:

• lack of obituary editorial standards; 
• names can be confusing;
• locations are not always clear; and
• ages and dates of birth sometimes are missing.

A way to overcome those issues, says Irey, is to validate data through marriage and divorce certificates, death records, and other sources. 

Multi-faceted approach. McDonald suggested using a multi-faceted approach that uses strategies such as: 

• monitoring participant communication;
• on a quarterly basis, looking for discrepancies about addresses;
• conducting outreach through phone calls;
• identifying decedents through state records and the Social Security Administration’s death master file (DMF); and 
• finding beneficiaries. 

And, McDonald said, these can be accomplished through: 

• regularly contact with participants through mail and phone calls; 
• preparing and using detailed tracking reports;
• using automated searches; and 
• sending certified mail with follow-up phone calls.  

It’s all about data. Irey advocated making sure one has correct and accurate data about participants and then doing an outreach. “It goes back to data,” he said.