What is the DOL's position, now, with a Plan provision that permits forfeiture of an account when the terminated participant cannot be located? Does FAB 2004-02 (detailing how to locate missing participants) effectively eliminate forfeiture as a proper procedure?

Does anyone have any comments regarding my thoughts on my own question? --

The DOL stated, long ago (1994), that even though IRS regulations permit forfeiture (or escheat) of an account because a participant cannot be found, that does not mean that the provision is free and clear of a claim that the provision--in that case escheat--is preempted. And the DOL then went on to say that ERISA preempts a state requirement mandating escheat of pension benefits (notwithstanding the IRS reg which permits it).

I think the same argument could be made regarding forfeiture of the account of a missing participant: in spite of the IRS reg. permitting that kind of forfeiture, such an action might run afoul of fiduciary obligations, in which case such a forfeiture would not be permitted. The DOL did not mention forfeiture as a permissible act to take when a participant cannot be located, implying that forfeiture might be a breach of fiduciary duty. (A similar example of this type of conflict is the IRS rule permitting forfeiture of an account upon death--except that the QPSA rules trump that rule and require payment of at least a portion of the benefit to the spouse after death.)

Therefore, I--for one--am very wary of ever forfeiting the account of a missing participant. Does anyone else have that concern at all, or am I just howling at the moon--again!

Under IRS reg 1.411(a)-4(a)(6) a plan can provide that the benefit of a missing participant is forfeited when it is payable subject to reinstatment of the benefit if a claim for payment is made by the participant or a beneficiary at a later date. I dont see how this provision violates ERISA non forfeiture rules because the participant or his heirs can always claim the benefit.

In light of the DOLs 'missing person guidance' I personally would not be wild about forfeiting such balances (though it still is in the regs that it is possible) conflict between DOL and IRS - who wins?
I am assuming you are talking about a 'small' balance. Has your document adopted the provision to rollover the amounts to an IRA if you get a 'no response' from the individual? I believe there are places willing to set up IRA for such people.

Most documents I work with have reduced the involuntary distribution ceiling (or is it floor?) to $1,000 in order not to have to deal with the administrative hassle of opening an IRA but I've not seen any documents which provide for opening an IRA for non-responders. MJB: In part, I hesitate to forfeit precisely because of the need for the employer to either fork over the money or take amounts from forfeitures to reinstate the account at some later date, and the uncertainty of determining the value of the account (which has been dispersed elsewhere for a number of years). I find it curious that the DOL did not mention that as a possibility in its FAB.

Hi, Larry and Tom.

It's a old thread, I know, but I was wondering if there has been anything new to develop on this topic? I have heard that this is affecting plans with participants with account balances greater than $5,000, as they can't just utilize the automatic rollover provisions when a participant goes missing. It would be useful to know whether forfeiture under the plan is indeed an option.

On a related topic, I heard a rumor - just a rumor - that the DOL either issued guidance or was contemplating issuing guidance regarding the distribution of missing participant account balances that exceed $5,000 from plans that are not terminated. I haven't seen anything official about that; have you?

Thanks,
PB

I have not seen any DOL guidance on accounts which exceed $5,000 in non-termianted plans when the particiapnt cannot be located. Nor have I seen any subsequent developments on the forfeiture issue since the above string of posts. Anyone else?

No, and I'm still looking.

For what it's worth, forfeiture in this situation always makes me squeemish. The plan's forfeiture provisions come into play with what to do with the amount that is forfeited, which could put the plan sponsor in the position of having to restore a forfeited account balance when the missing person (or their estate) shows up to claim the money when the forfeited account balance went out as an additional allocation to participants.

I've got a similar situation, however the plan is trying to terminate. The missing participant has an account balance of about $165. I've not heard of any IRA provider who will accept an amount that small. Plan sponsor doesn't want to pay for a 2011 5500 while waiting on the IRS or DOL letter forwarding program. Any other suggestions?

What do you do when the missing participant turns 70 1/2 and cannot be found? I know of plans that have not been able to locate participants who are supposed to start RMDs. Restoring the balance when the particpiant returns to claim the benefit rarely happens because the participant usually dies before commencing social security benefits and was never notified of the vested benefit by Social Security. Or the participant has changed identity and is using a different SS number.