Administrator has the option of either (1) transferring these funds to the PBGC or (2) purchasing an annuity. I am familiar with the PBGC option, but wondering if anyone has any experiences to share with the purchase of annuities option. What due diligence is required? Fixed or Variable? etc... Thanks for any feedback!

I cannot answer this question directly. However, I doubt that an insurance company will be very eager to bid on annuities for missing participants, especially since these are usually the small amounts.

You might also have some negative reaction if you purchased an annuity (small, but not zero risk of insurance company default) versus letting the PBGC take it.

The option of sending the missing participants to the PBGC is only available upon termination of the Plan. The Plan Adminsitrator can purchase annuities for participants missing, or simply awaiting attainment of Retirement Age in an ongoing Plan. We provide actuarial services for a number of plans where all terminated participants are annuitized until they attain retirment status, when they begin recieving monthly benefits. Most, if not all, of these plans do not provide for payment of lump sums.

I may have misread the original post.
Ray is correct. Using the PBGC to handle missing participants is a procedure applicable only upon plan termination, and only when you have done reasonable search to find those missing.