The Government Accountability Office is again calling on the Labor Department to issue new guidelines on employers’ requirements for connecting former employees with their retirement accounts.
In a report issued last week, GAO acknowledged Labor’s current investigations of the efforts employers are taking to connect so-called missing plan participants with their defined benefit and defined contribution accounts after they leave their employer.
Under the Employee Retirement Income Security Act, employer sponsors of retirement plans have a fiduciary obligation to manage plan assets in the best interest of their employees.
But ERISA does not define employers’ specific fiduciary requirements for tracking down workers when they change jobs.
The number of missing participants has grown over the decades as America’s workforce has become more mobile. According to the Bureau of Labor Statistics, the average person now changes jobs 12 times throughout their working career.
In a previous 2014 report, GAO said more than 25 million participants in workplace retirement plans left at least one account behind when they changed employers between 2004 and 2013. Research from TIAA estimates that 30 percent of employees had left a retirement account behind with former employers by 2015.
Labor has specific guidance for sponsors when plans are terminated. Employers are required to distribute all plan assets as soon as possible, and to search for missing participants. If participants can’t be found, savings can be transferred to federally insured banks.
Those requirements create an urgency for employers to connect workers with their savings when plans terminate. But that urgency is often missing with on going plans when workers change employers, GAO said in its new report.
When participants leave assets in a savings plan, the onus is on them to provide updated contact information, and to respond to employers’ efforts to communicate options for their savings.
But employer notices often go unread. And in the event that contact information has not been updated, employers are left with little recourse as to how to locate former employees.
“Without guidance on how to search for separated participants who leave behind retirement accounts, sponsors may choose to do little more than remove unclaimed accounts from the plan when possible, and workers may never recover these savings,” GAO said in its report.
Under existing law, accounts with less than $1,000 can be cashed out, and employers can withhold the taxes for early withdrawals until participants come to claim their saving.
Accounts with up to $5,000 can be forcibly transferred to IRAs, where the savings can be subject to high fees. GAO examined 19 forced-transfer scenarios—in 13 of them, accounts that started with $1,000 were reduced to zero over 30 years.
As of 2013, nine IRA providers had opened 1.8 million forced-transfer IRA accounts, with savings totaling $3.4 billion, according to the report GAO issued in 2014.
“DOL has also uncovered tens of thousands of participants of retirement age with unclaimed accounts that remained in their plans who were not receiving the retirement income they were due,” GAO says in its new report.
Under Labor’s investigations of plan sponsors, regulators are keying on the efforts employers are making to keep updated records of separated employees.
“Officials are aware that additional guidance indicating what is expected of plan fiduciaries would be helpful,” GAO said, referencing Labor’s input to the report.
Proposed legislation would create database of accounts
Shortly before GAO issued its report, Sen. Elizabeth Warren, D-MA, and Sen. Steve Daines, R-MT, re-introduced legislation that would create a central database for all retirement accounts held by retirees and near retirees.
The Retirement Savings Lost and Found Act was first introduced in 2016. Under the law, the Treasury Department and Social Security Administration would oversee an online directory of account information based on IRS filings. Savers would have access to plan administrators’ contact information.
The bill also sets new guidelines for contacting missing participants. Beyond attempting to contact participants through records of existing addresses and email accounts, employers would also have to reach out to named beneficiaries on accounts, and search for new contact information though Google. If those efforts fail, employers would have to use commercial services to locate participants.
Under the law, the cap on forced IRA transfers would be raised to $6,000. Assets from cashed out accounts of less than $1,000 would be sent to the Treasury Department. When accounts are forcibly transferred, assets would be moved to a target date fund.
AARP, and the ERISA Industry Committee, which advocates for large employers that sponsor retirement plans, have backed the bill.
“Current enforcement actions in finding missing participants are unnecessarily and unfairly adversarial, create confusion and undermine industry efforts to improve compliance,” said Will Hansen, senior vice president at ERIC, in a press release.
“Senator Warren’s bill provides much needed guidance to employers on the steps they must take to find missing plan participants and gives employees access to important information about their retirement portfolio that will greatly reduce the number of individuals who can’t locate their retirement funds,” added Hansen.