Ask an Adviser: What happens if we learn a missing 401(k) plan participant has died?

Welcome to Ask an Adviser, EBN’s weekly column in which benefit brokers and advisers answer (anonymous) queries sent in by our readers. Looking for some expert advice? Please submit questions to askanadviser@arizent.com. This week, we asked Neal Ringquist, executive vice president and chief revenue officer of the Retirement Clearinghouse, to weigh in on the following: What happens if we learn a missing plan participant has died?

This is an excellent question because so much can hang in the balance. If a former employee who left behind a retirement account balance is deceased, the next step should be for the plan sponsor or recordkeeper to contact that plan participant’s beneficiary. If no beneficiary information is available, the other option is to follow the unclaimed property laws for the state where the deceased participant was located. 

Deceased participants, of course, would want their beneficiaries to receive the hard-earned retirement savings in any accounts they left behind when they changed jobs along their journey toward retirement. Sponsors whose plan recordkeepers collect and maintain beneficiary information for past and current participants are well-positioned to transfer deceased participants’ account balances to their next of kin. Beneficiary information is not portable when a rollover occurs, so it is important for participants to be reminded to always establish and review beneficiary details for any new account established, including 401(k)s or IRAs.

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Plan sponsors can track down missing participants with the help of their recordkeepers, or third-party providers of these services. Performing regular record searches for missing participants is often less expensive than sponsors assume. They can help ensure that participant addresses remain up-to-date in plan records so participants can receive reminders to add or update beneficiary information. While missing participant search services can produce next-of-kin information for deceased participants, that data is not a substitute for a formal beneficiary designation.

To avoid a scenario where missing participants are found to have died with no beneficiary information, sponsors can adopt portability solutions that facilitate movement of 401(k) savings account balances to their new employers’ plans or existing IRAs at the point when they change jobs. That way, former employees will be much less likely to leave their 401(k) plan accounts behind in prior employers’ plans (and their address records will be far less likely to become stale) in the first place. Simplifying 401(k) account consolidation for plan participants (past and present) can help prevent their hard-earned assets from getting lost in the retirement system during, and after, their lifetimes, and will help them keep their beneficiary designations current.