Contacting Missing Plan Participants — Practical Considerations

by CHARLES A. STORKE AND MATTHEW L. GOUAUX
There are many circumstances in which plan sponsors and administrators of employee benefit plans may want or be required to contact plan participants for whom they have no valid mailing address. Without attempting an exhaustive catalog of reasons, some of the more common ones are:

• Notifying participants who have terminated employment with small account balances or small annuities under an ongoing plan that their benefits will be transferred automatically to a rollover IRA set up by the plan sponsor unless the participant affirmatively elects to receive a distribution in cash or a rollover to an IRA established by the participant.

• Notifying participants in terminating defined contribution plans that their benefits may be transferred automatically to a rollover IRA set up by the plan sponsor unless the participant affirmatively elects to receive a distribution in cash.

• Notifying participants of the termination of their defined benefit plan.

The U.S. Census Bureau reports that over 40 million Americans, roughly 15% of the population, move each year. As employers and plan administrators know all too well, many of these individuals fail to notify the U.S. Postal Service of their new mailing address. Even fewer share this information with the administrator of any benefit plan in which they participate. Maintaining an up-to-date mailing list in this environment is a challenge for many plan sponsors and plan administrators. The problem of "missing" participants is perhaps greatest for multiemployer benefit plans, where there is often no direct connection between the plan administrative organization and the individual employee.

There are a variety of resources available to assist a plan administrator in meeting this challenge, including submission of participant mailing lists to the U.S. Postal Service through a commercial mailing service for updates from the USPS change of address databases, use of Internet search tools, commercial locator services and credit reporting agencies and, last but definitely not least, the letter forwarding services offered by the Internal Revenue Service (the "IRS") and the Social Security Administration (the "SSA").

This article will focus on the IRS and SSA letter forwarding services because they often are the method of last resort in contacting a missing participant or beneficiary and, more importantly, their use is often mentioned in guidance from the ERISA regulators as being one of the steps that plan administrators may or must take as part of their "reasonable efforts" to contact plan participants in a variety of circumstances.¹

The letter forwarding services offered by the IRS and the SSA are similar in purpose, but it would appear that in most circumstances the IRS program will be more suitable and less costly than the rather informal arrangement offer by the SSA. The principal drawback to both these services is that neither agency provides the plan administrator with a participant's last known address, or confirms whether it has an address for a given individual or whether the communication from the plan administrator was actually received by that individual.

Letter Forwarding by Social Security Administration

The SSA will forward a letter to a missing person under circumstances involving a matter of great importance of which the person is unaware, and would undoubtedly want to be informed. "Great importance" includes informing a person that a sizeable amount of money is due him or her (the SSA does not clarify how sizeable the amount must be).

The SSA reads each letter to ensure that its contents would not be embarrassing to the missing person if read by a third party. For this reason, letters must be presented in a plain, unstamped and unsealed envelope showing only the missing person's name. There is no explicit limit on the number of pages that make up the letter.

The nonrefundable fee for this service is $25 per letter (unless the letter serves a "humanitarian purpose," which does not include locating a person to whom money is owed). Letters are forwarded in care of the employer who most recently reported earnings for the missing person, unless the SSA has the person's home address (which it is unlikely to have unless the person is receiving benefits from the SSA). The SSA will not disclose whether a letter has been forwarded or delivered.

Requests for letter forwarding should be sent to:

Social Security Administration
Letter Forwarding
P.O. Box 33022
Baltimore, MD 21290-3022

Plan administrators may want to use SSA letter forwarding if plan records do not contain the individual's Social Security Number (e.g., a deceased participant's beneficiary) or if they have reason to believe the individual might be receiving Social Security benefits of some kind and may not have worked recently. It is also more economical for Plan administrators to use SSA letter forwarding rather than IRS letter forwarding if the number of letters involved is more than 49 but less than 75.

The most up-to-date information on the SSA letter forwarding service is available on the SSA website.

Letter Forwarding by Internal Revenue Service

The IRS letter forwarding program is more formalized than the SSA program, and the applicable procedure varies depending on the number of letters to be forwarded (fewer than 50 or 50 or more letters). The IRS program seems to be geared specifically toward plan administrators and plan sponsors attempting to locate missing participants. See Revenue Procedure 94–22. The IRS will only forward letters that serve a "humane purpose," which it defines as including attempts by qualified plans to locate missing participants. The procedure for letter forwarding essentially involves the plan sending the IRS a cover letter and a letter directed to the missing participants. The IRS will not provide the plan with the results of its efforts; if an address cannot be found or the letter is returned by the Postal Service as undeliverable, the letter will be destroyed, and the plan will not be notified.

Note: the plan must have the missing participant's social security number to use the IRS program, whereas other identifying information may be used under the SSA program.

Special requirements apply if 50 or more letters are to be forwarded, resulting in a significant processing delay; letters are sent approximately 90 days from when the IRS acknowledges the plan's request. Based on recent experience, it can take the IRS as long as six months, perhaps longer, to even acknowledge the request. Plan administrators would be wise to plan far in advance when using this program, especially in circumstances, such as a plan termination, where meeting a hard-and-fast deadline may be imperative.

There are key differences in the types of information that a plan administrator must provide to the IRS depending on the size of the mailing.

Fewer than 50 Recipients

If a plan (or other organization) requests forwarding to 49 or fewer individuals in a 12-month period, there is no fee for the forwarding service and the process is very straightforward. The plan sends a cover letter and a letter directed to the missing participants to the "Letter Forwarding Unit" for the state in which the plan is located. Note that requests are aggregated by organization, not by Forwarding Unit. Thus, if one plan sponsor or plan administrator were to send 49 requests to each of several different Forwarding Units, a different procedure (and a fee) will apply.

The cover letter should:

• state why the IRS' assistance is being sought;

• list the names, social security numbers, and (if available) last known addresses of the missing participants; and

• include the name and address of the person, or organization, to whom the IRS should send an acknowledgement letter. The IRS will only acknowledge that it received the correspondence and indicate whether it will attempt to forward the letter.

The letter directed to the missing participants should:

• advise the recipient of the reason for the letter;

• include instructions as to what the recipient should do to contact the sender if he or she decides to respond;

• make clear that response to the sender's letter is completely voluntary on the part of the recipient; and

• include the following disclaimer statement in the opening paragraph: "In accordance with current policy, the IRS has agreed to forward this letter because we do not have your current address. The IRS has not disclosed your address or any other tax information and has no involvement in the matter aside from forwarding this letter. Your response to this letter is completely voluntary."

Upon receipt of the plan's request, the Letter Forwarding Unit will search its records under the social security number provided and, if an address is found, forward the letter using an IRS envelope.

50 or More Recipients

If a plan anticipates requesting forwarding to 50 or more individuals in a 12-month period, the service requires the plan to use what it calls the "Project 753 Computerized Mail-Out Program." The IRS charges a flat fee of $1,750, a per-mailing fee of $.50, and a peraddress- search fee of $.01 for this program. This program should not be used if a mailing is time-sensitive, because letters are not sent until 90 days after the service acknowledges the plan's request for forwarding, and it can take as much as six months for the acknowledgement alone.

Before submitting a letter for forwarding, a plan must submit the following information to the appropriate Letter Forwarding Unit:

• a brief explanation of the need for letter forwarding;

• the number of potential recipients;

• whether the plan has the social security number of each individual it wishes to contact on "magnetic media" as specified by the IRS;

• a sample of the letter to be forwarded on the plan's letterhead and signed by an authorized person (maximum size paper: 8.5" by 11"; no more than 3 pages, front and back);

• an estimate of the value of assets being held by the plan for the missing participants; and

• a statement that the plan is aware that IRS will charge a fee for this service.

The sample letter is slightly different under Project 753. It should be more general in nature and involves a slightly different format. The letter should not be personalized with a participant's name or other identifying information. There are sample letters on the IRS website for both IRS programs.

Once the IRS reviews the request it will provide the plan with a cost estimate, specifications for submitting the names and social security numbers of the missing participants, a timetable for the forwarding process and a standard form reimbursement agreement to be signed by the plan administrator. To complete the process, the plan administrator must then provide the IRS with the requisite number of copies of the approved form letter (again, with no names or other personal information) "business folded" to fit into a #10 envelope. Once the IRS receive the letters together with signed copies of the reimbursement agreement, a check covering the estimated cost and a properly formatted list of names and Social Security Numbers on electronic media (cartridge, diskette or CD), the IRS will begin processing the request. A name and address label is printed on a blank piece of paper for each individual for whom the IRS has an address in its database which is then stuffed in an envelope with a copy of the prefolded form letter, and then mailed.

At times, a plan administrator may be required to locate the surviving spouse of a recently deceased participant, with no knowledge of the spouse's Social Security number (or even of whether a spouse exists). Generally, the IRS will not forward a letter to an individual unless the plan administrator can supply that person's Social Security Number. However, the IRS database includes a cross-referencing system for identifying a taxpayer's spouse based on the taxpayer's Social Security Number. The Service can use this linkage in conjunction with its letter forwarding program to forward letters to a participant's surviving spouse advising them that they may be entitled to a spousal annuity or death benefit from the plan.

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¹ The most comprehensive exposition to date from a government agency on the subject of locating missing participants can be found in the Department of Labor's Field Assistance Bulletin issued on September 30, 2004. As an aside, although the DOL Bulletin is certainly required reading for any plan administrator facing the task of winding up a terminating defined contribution plan, we think the DOL's guidance on what efforts must be made to locate missing participants should be reviewed in any context where locating missing participants may be necessary or desirable. A summary of its key provisions can be found in our December 2004 Benefits Report.

Copyright © Trucker Huss. All rights reserved. This article is published as an information source for our clients and colleagues. The article is current as of the date shown above, is general in nature and is not the substitute for legal advice or opinion in a particular case. In response to new IRS rules of practice, we inform you that any federal tax information contained in this writing cannot be used for the purpose of avoiding tax-related penalties or promoting, marketing or recommending to another party any tax-related matters in this writing.