The Pension Benefits Guaranty Corp. has published a proposed rule that would expand its current Missing Participants Program to cover participants in terminating 401(k) plans.

Under the proposal, sponsors terminating 401(k) plans would be able to use the PBGC to warehouse the accounts of missing participants — those workers that have separated from an employer but left their assets in plan. The PBGC would then track the participants with the goal of ultimately reconnecting them with their assets.

Voluntary participation

Participation in the program would be voluntary, and would cost sponsors a fee of $35 per missing participant, which “would not exceed PBGC’s costs” to transfer and hold the assets, and then track down participants, according to the proposed rule. There would be no charge to track accounts with less than $250.

The proposed rule results from a provision of the Pension Protection Act of 2006 that authorized the PBGC to expand the scope of its missing participant program, which then only included single-employer defined benefit plans, to include terminated participants in most defined contribution plans and in multiemployer plans insured by the agency.

As the rule-making process progressed, the PBGC considered mandating that sponsors report information to the agency on missing participants in terminating 401(k) plans, even if they choose not to fully participate program.

But a request for information from the agency in 2013 yielded concerns from plan sponsors that the requirement to report information on missing participants would be costly and burdensome. Consequently, the PBGC removed the mandatory reporting requirement from the proposed rule.

Details of the proposal

Under the proposal, sponsors that elect to move missing participants’ 401(k) assets to the PBGC will be referred to as “transferring” plans. Sponsors that choose to notify the PBGC of missing participants and their assets, but do not transfer the assets to the PBGC, will be referred to as “notifying” plans.

In the proposal, the PBGC raises concern for the potential of “cherry-picking” among transferring plans, whereby smaller 401(k) account balances are moved to the agency, and larger account balances are kept within the plan to protect the overall value of the plan and sponsors’ negotiating power with plan providers.

The PBGC is proposing that if a sponsor elects to use the agency’s missing participants service, then they would be required to transfer all assets of all missing participants’ accounts to avoid the potential for cherry-picking. Stakeholders have until the third week in November to comment on the proposal.

The agency estimates that about 3,100 defined contribution plans terminate each year with missing participants. The proposal would also expand the existing missing participant program to multiemployer plans, and make reporting requirements more efficient for single-employer sponsors that use the system. The PBGC says it expects “many” terminating 401(k) plans to use the service.

As is, only 200 single-plan sponsors of defined benefit plans use the PBGC’s missing participant data system. Between 2013 and 2015, the program paid out about $2.27 million in missing participant defined benefit assets.

Of the proposed rule, which the PBGC hopes to have implemented by 2018, Thomas Reeder, director of the PBGC, said that people generally associate the agency with covering benefits in failed pension plans.

"We are also responsible for enhancing retirement security for American workers and retirees,” said Reeder in a statement. “One of the ways to do that is to connect them with their retirement savings."

Finalized rule on new late filing schedule

The PBGC has also finalized a rule that reduces the penalties on late premium payments.

Under the previous schedule, sponsors were fined 1 percent of the premium payment per month when they self corrected the late payment, and 5 percent of premiums if the late fee was levied after the PBGC notified the sponsor.

Those rates have been cut in half with the new rule, which will be published in the Federal Register on September 23, 2016.

The self-correction fine is now 0.5 percent of the premium per month, and 2.5 percent if the sponsor has to be notified by the agency.

Instant Insights /

PBGC proposes expanding Missing Participant Program to terminating 401(k) plans

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