An employee leaves your company and they still have a balance under your retirement plan. Years go by and the former employee cannot be located. Why is that your problem? If they changed their address and never told you, why should you as the former employer be responsible to find lost participants?
Well, the law of the land for retirement plans (called ERISA) states that the employer has a fiduciary responsibility to all participants—both current and former employees—under the plan. The Department of Labor expects you to take steps to locate lost participants. And who has time to do that? You are not a private investigator!
Lost plan participants can cost you time and money. The Department of Labor can fine you for not doing enough to search for them. And most third-party administrator charge based on the number of participants. You pay more when you keep lost participants in the plan.
How can you mitigate these issues?
- In the exit interview, stress the importance of making sure the employee recognizes their benefits. If their contact info changes, tell them how important it is for them to update that information on the 401k system.
- The best time for former employees to make decisions about moving their money out of your plan is right when they leave your company. Engage a consultant who has the ability to reach out to departing employees with the appropriate paperwork and provide them with options for what to do with their money as soon as their employment ends.
- Work with a consulting team that uses trusted locator services to reach out to any lost participants.
- Build terms into your plan document stating that you can automatically force participants out of the plan if they have a vested balance under $5K whether they signed the paperwork or not. This insures you against having to incur costs to track down lost employees who have minimal benefits.
Or if that sounds like a lot to manage, hand these responsibilities off to a professional retirement plan consultancy and lose your worries about lost participants.