PBGC provides new option for missing 401(k) participants

If you don’t have a defined benefit pension plan, you may have never heard of the Pension Benefit Guaranty Corporation. The PBGC is a government agency that insures defined benefit pension plans, so retirees whose companies go bust end up with something, even if it’s not their full pensions. Final regulations now allow the PBGC to accept transfers made by terminating 401(k) plans if you can’t find former employees, but need to make distributions to them on account of the plan’s termination. These regulations became effective Jan. 22, 2018. (82 F.R. 60800, 12-22-17)

Missing with plan assets. The tax code accounts for orphaned 401(k) plan assets, regardless of whether the plan is ongoing or terminating. Plans that require distributions to departing employees whose 401(k) balances are less than $5,000 must roll over those balances directly into plan-designated IRAs, if employees didn’t provide distribution instructions, their accrued balances exceed $1,000 and they can’t be located.

Plan-initiated rollovers apply to all mandatory distributions exceeding $1,000, including distributions to former employees whose balances exceed $5,000, which normally require their consent prior to distribution.

New PBGC option for terminating plans. Using the PBGC’s new missing participants program is voluntary; you can still go the traditional IRA route, if you choose. You participate in the PBGC’s program by transferring employees’ account balances directly to it or by providing it with information about where the account balances were transferred.

This option may be more favorable to employees, since the PBGC charges only a modest one-time administrative fee of $35 for transferred accounts of more than $250. In addition, there’s no annual or transaction-based fees (e.g., no ongoing maintenance or search fees and no distribution charges).

IT’S ALL OR NOTHING: You can’t cherry pick the accounts you’ll send to the PBGC. You must transfer the account balances for all missing employees to the PBGC. If you’re interested in this option, you’ll need to file Form MP-200 and Schedules A and B. Point your browser to tinyurl.com/missingps for more information.

Penalty relief for failure to make required minimum distributions to missing employees. The IRS has issued guidance to auditors in its Employee Plans division under which they may not challenge a plan for violating the required minimum distribution rules if the employee is missing. Plans must take the following steps:

• You must search the plan, related plans and publicly-available records or directories for alternative contact information
• You must use a commercial locator service, a credit reporting agency or a proprietary internet search tool for locating a missing employee
• You must send certified mail to the missing employees’ last known addresses. (TE/GE-04-1017-0033)