Missing In Action

This article accompanies Lost and Found.

Tuesday, July 17, 2012
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Attorney Stephen F. Herbes in Short Hills, N.J., suggests the following search process for connecting former employees with their cash.

While not required by law, he says, it's based on fiduciary requirements -- to act in the participant's best interest -- imposed by the Economic Growth and Tax Relief Reconciliation Act of 2001.

Send a distribution check via certified mail to the person's last known address.

Review the ex-employee's personnel file if the check is returned. Is there any record of family members or beneficiaries who may know the person's whereabouts?

Use the Internal Revenue Service's letter-forwarding program if you've reached a dead end. Retain a private search firm as an alternative. "This is where the fiduciary obligation of acting in the best interest of the participant really comes into play," Herbes says. "But it may not make sense financially, given the [account] balance. At some point, the plan [sponsor] has to make a judgment as to whether continued efforts to locate this person are justified based on the cost."

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Roll over the funds into an IRA, if the cost of finding ex-employees outweighs the account balance. Since the selection of an IRA is, itself, a fiduciary act, document why you chose that specific institution to establish the IRA. Keep in mind that mandatory withdrawals begin at age 70.5. To avoid participants paying heavy excise taxes, HR can make withdrawals on their behalf and deposit the funds into a FDIC-insured interest-bearing account.

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