Episode 7: Missing Participants

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Hello and welcome to Revamping Retirementment, a podcast brought to you by Comac Retirement Group, where we tackle the retirement plan related issues plaguing fiduciaries and plan sponsors. Our host, Mike Webb, has more than 25 years of experience in the retirement plan industry and is a nationally recognized subject matter expert. We hope you enjoy Revamping Retirementment.

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Thanks, Karen—Karen McCauley, our producer, and welcome everybody to another, what I hope to be exciting episode of Revamping Retirementment. My name is Mike Webb and for the next 10 minutes or so, I’m going to hopefully not make you fall asleep because that’s the goal of our Remembering Retirement podcast. That’s why we keep it short. I’m going to talk about another subject that should be of interest to you, not only if you’re a planned sponsor, but also if you’re a participant.

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and that is a subject that’s really caught fire lately in the retirement industry and that is missing participants. And what we mean by missing participants is just that, participants who can’t be located by the retirement plan sponsor because they haven’t kept their address up to date for the most likely reason. But before we get started, as always, we have our trivia question. And this month’s trivia question on our Revamping Retirementment podcast is related to missing participants.

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not only retirement plans but there’s a lot of missing participants who don’t claim money out there for whatever reason and it’s not limited to retirement plans. According to published reports about how much money is currently unclaimed on average per every U.S. resident. So we take all the unclaimed property out there divided by the number of U.S. residents and what number would we come up with? Is it a dollar? Is it a hundred dollars? Two hundred dollars?

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or $500. It’s not an even number like that, but it’s very close to one of those numbers. And we will have the answer at the end of our podcast as always. But right to the subject at hand, why missing participants are really exploding now and really taking hold is, know, lot of plants have just gotten better at their record keeping over the years. And, you know, they’ve done a lot of the easy stuff with regard to compliance and record keeping.

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Now they’re getting into the hard stuff and one of the hard things is this kind of was a dirty little secret out there that only people like myself knew about that’s really kind of surfaced is that if you’re a plan sponsor now you’re listening to this chances are if you checked the number of participants who have bad addresses in your retirement plans you would be shocked if you haven’t already checked it already at the number and the reason why it’s not a good thing is

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is twofold. Well for employees it’s not a good thing because they just have less money in their pocket. And this is a world of job changers. Not unusual for employees to have five, ten jobs in their lifetime. you know at each one of those places they left, it’s not 100 % certain that they left their addresses up to date and then the plan sponsor can’t track them down and then they don’t have money. And it’s not just retirement plans.

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Other things, that’s why there’s all these what are called the state unclaimed property funds, where employees have simply abandoned bank accounts or whatnot, because they didn’t keep their addresses up to date. For plan sponsors, there’s just so many problems with missing participants. It’s a hot button at the DOL. They’ve already publicly stated they’re staying near auditing plans. Used to be they were just going after defined benefit plans, but now they’re going after defined contribution plans, looking for missing participants because…

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Apparently they’ve had a great deal of success in locating such individuals and you don’t want to be in a DOL audit or Department of Labor audit when you tell them you can’t find somebody and they find them. I can tell you that. So that’s big deal. What else is bad about missing participants? It lowers the average account balance size because those account balances tend to be small and they stay in your plan until you find the person. So that tends to drag down that size making it more difficult.

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You get better pricing from your record keeper because record keepers generally price on average account balance size. Those missing accounts drag that down. It makes it lot more difficult to provide all the required disclosures as required under laws such as ERISA with summary plan descriptions, such as 403B plans. You’re supposed to notify people of their right to defer, their universal availability, summary annual reports, et cetera, et cetera. Those things getting returned to you are not good things because that means for those participants you haven’t fulfilled your disclosure requirement.

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makes it more difficult to administer forfeiture accounts. A lot of plans, if the money’s unclaimed, it’s ultimately forfeited. Well, that’s provided that the money goes back to the employee if the employee comes forth to claim it. So it makes forfeiture accounts a lot trickier to administer. I mean, if all missing participants went away today, plan sponsors and employees would be very happy. So I’ve talked about the problems with it, how to fix it. On the employee side,

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If you’re changing jobs, never ever ever leave a job without updating your address. Even if you don’t think you have any money there. It’s good for so many reasons or other benefit issues such as COBRA. Just don’t do it. So no matter what bad terms you left your employer, you don’t want them holding your money. So make sure that your address is updated. If you don’t feel comfortable updating with the employer,

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Find out who the retirement plan vendor is and find out who their benefit vendors you might be entitled to access and update it with them. Check state unclaimed property funds. They can be a goldmine for people. We’re going to get to our trivia question later. But I can tell you, personal experience, I haven’t found anything for me, but I found for many of my relatives, almost too many to count at this point, who, you know, got old, forgot, didn’t check or didn’t look, and not just deceased relatives, ones who were still alive, and not little money either.

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Just so you know, now a lot of these unclaimed property accounts are small. That’s why people abandon them in first place. They don’t want to chase down seven bucks. It is what it is that way. Seven more bucks to me, I would go and get it. But some of them are very large. I think most famously there was a couple years ago there was somebody who claimed 32 million or something ridiculous like that. So you definitely want to check. go on, just Google unclaimed property. It’s very easy to go to the state’s websites. Don’t ever fall for somebody who says they want to

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charge you for doing this, you can go to the state websites for free and easily search by your name for unclaimed property. And another important thing, if a prior employer contacts you saying that you have funds in their retirement account, treat it as legitimate and respond. I’ve heard many stories from plan sponsors that they’ve tried to contact missing employees and the employees aren’t really missing at all, they just don’t want have anything to do with the employer, they think the former employer is scamming them. And these are cases where they’ve had pretty significant balances for employees.

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So try to assume, you know, if it’s your employer contacting, I mean, trust and verify, make sure it’s your, you know, obviously Google the person’s name, make sure it’s what your employer, but after that, you know, they’re probably trying to reach out to you because they’re trying to give you money. On the employer’s end, first and foremost, make certain your record keeper’s doing everything it can to find missing participants. I can tell you from firsthand record keeper experience, this is not a top priority of retirement letter.

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If it was, there’d be a lot less missing participants out there. It simply is not a priority. So you’re going to need to drag them kicking and screaming to do everything they can to find your participants. You view it as an unacceptable or there to be a lot of missing participants in your plan. Make sure your plan’s a small balanced cash out policy or auto enrollment procedure is not creating more missing participants. I can tell you it’s due to poor design or poor administration.

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There’s a lot of auto enrolls that auto enrollment creates a lot of small accounts. So you got to really be on top of auto enrollment and make sure that those small accounts aren’t becoming lost. Same thing with small balance cash outs. So I’ve seen a lot of plans where they have wonderful small balance cash out provisions that actually aren’t enforced, that people aren’t actually cashed out. That’s an important thing. More more popular, by the way, with a small balance cash out provision is actually not having checks under $1,000 cent of our dispense. It used to be…

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One to five thousand you roll to an IRA, under a thousand you send a check. But so many people are getting return checks now under a thousand. The better approach has been zero to five thousand have an auto IRA roll over. So just something to think about. Making certain to keeping addresses current is a point of emphasis. Not only in the employee’s exit interviews, but throughout the employee’s working career. Really reinforce that, hey, if you ever leave here, we need to you have your address up to date because you might be entitled to money.

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and always keep your address up to date as a matter of course. If someone moves and keeps their address up to date while they’re active, chances are they may keep it up to date when they terminate. If all else fails with trying to minimize these missing participants, there are many firms out there will be more than happy to locate them quickly and easily for a fee or as part of a package offering that they may offer their rollover services for small balance cash outs. So this is also something to keep in mind.

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Some of those purposes, even though you have to pay for them, are actually worth it in getting rid of this problem. We’re at our 10 minute mark, so I want to get quickly to the answer of our trivia question. On average, what does every U.S. resident have in unclaimed property? Is it a dollar, $100, $200, or $500? The answer is, on average, it’s $200. So that’s pretty big figure. Something to think about in terms of unclaimed property. That’s not even counting money from retirement plans, because most retirement plan money doesn’t end up in a…

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property funds. For Karen McCauley, our producer and our entire production team, this has been Mike Webb and until next time, this has been Revamping Retirement.

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The content in this podcast is for institutional investors and plan sponsors. The information is intended to be educational and is not tailored to the investment needs of any specific investor. All examples of investor gains and losses are hypothetical and intended to illustrate the importance of early saving and consistent retirement contributions over time. Investment decisions should be based on an individual’s own goals, time horizon, and risk tolerance. Nothing in this content should be considered as legal or tax advice, and listeners are encouraged to consult their own lawyer.

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accountant or other advisor before making any financial decision. Thank you for listening to Revamping Retirementment.