Plan fiduciaries must make sure all participants—active, terminated, or retired—receive the benefits they are entitled to. The Department of Labor (DOL) and Internal Revenue Service (IRS) have both issued guidance on how sponsors should prevent and resolve “lost participant” issues.

DOL Guidance

The DOL stresses the importance of accurate records. Keep participant contact information such as addresses, phone numbers, and email addresses current so that you can use multiple contact methods. Document every step you take to locate someone.

If your plan is under review, examiners often look closely at terminated participants with vested benefits. Missing records can lead to plan errors and corrective actions. For terminating defined contribution plans, you can transfer missing accounts to the PBGC’s Missing Participant Program. Ongoing plans now have an additional option: small balances ($1,000 or less) may be transferred to a state unclaimed property fund or insured bank account, if fiduciary conditions are met.

Additionally, the SECURE 2.0 Act introduced a “Lost & Found” database in 2024, giving participants an online tool to locate lost accounts using their Social Security number.

IRS Guidance

The IRS discontinued its letter-forwarding service in 2012. Sponsors must now rely on locator services, public databases, and DOL best practices to find missing participants.

When it comes to required minimum distributions (RMDs), the IRS won’t penalize a plan for missed payments if the sponsor can show reasonable search efforts, such as certified mail or online locator services. And while accounts transferred to a state unclaimed property fund can still qualify for favorable tax treatment if rolled over later, this does not replace a fiduciary’s duty to follow DOL rules.

Key Takeaways for Sponsors

• Maintain complete and accurate participant records.
• Document all efforts to locate missing participants.
• Apply the same process consistently to all participants (including owners).
• Use DOL’s best practices and IRS guidance to avoid compliance failures.
• Remember: fiduciaries are responsible until benefits are paid out.

Lost participants can create serious compliance risks if not handled correctly. Now is the time to revisit your plan procedures and confirm they are up to date. HBE’s Employee Benefit Plan team is here to help you evaluate your processes and strengthen your fiduciary practices. Contact us today to get started.