Key Details: During mergers and acquisitions (M&A), one important issue that can be hiding in plain sight is the treatment of tax-qualified defined contribution retirement plans and their participants. While the parties negotiate deal terms, plan sponsors must evaluate the plan’s eventual disposition and maintain compliance with ERISA and the Internal Revenue Code (IRC). Generally, the plan sponsor’s fiduciary responsibilities to participants continue throughout the transaction and beyond — including those designated as lost or missing participants. That group comprises former employees or their beneficiaries or alternate payees who cannot be located by the plan sponsor or have failed to respond to benefit-related communications. A proactive approach to managing lost or missing participants can help reduce fiduciary, regulatory, and financial risks during an M&A transaction.
In 2021, the Department of Labor (DOL) issued sub-regulatory guidance related to lost and missing participants in defined contribution retirement plans. Although that guidance is not law, the DOL expects plans to follow it and includes questions about it in most enforcement actions. For more background and best practices, see our Alert: “Missing Participants: What Plan Sponsors Need to Know About the DOL’s Latest Guidance.”
This article pinpoints M&A-specific considerations and offers practical guidance to help defined contribution plan sponsors avoid common pitfalls.
Before considering specific implications, it is important to understand how participants in defined contribution plans become lost or missing. Communication between plan sponsors and participants can break down, often in the following common ways:
When it becomes clear that the participant is unresponsive and may not be receiving benefits, defined contribution plan sponsors — often working with third-party administrators and recordkeepers — typically initiate a structured search process. Reviewing all returned mail and uncashed checks is a starting point, but a plan sponsor’s data maintenance, regular reviews, and periodic outreach are also key to locating participants and reducing fiduciary exposure, compliance risk, and finance and accounting pitfalls. Plans should maintain records of their efforts to locate missing participants, including how often the search was conducted, what was done, and how long the search lasted. The DOL guidance notes that more significant efforts should be made for higher account balances (taking a cost-benefit approach).
The buyer typically conducts due diligence to determine key factors, including the seller’s overall financial condition, regulatory compliance, liabilities, and employee benefit plans. Finding missing plan participants during due diligence introduces additional concerns to address, including those listed below.
Missing-participant issues can emerge in the early stages of a business transaction, but they do not end once the deal is done.
The strategy chosen for the retirement plan will determine the next steps for all participants, including those who are lost or missing. For example, any of the outcomes below is possible.
In each scenario, plan sponsors must continue to comply with applicable laws and satisfy their fiduciary obligations to participants.
Perhaps the best answer to this question is that plan sponsors should always be prepared for heightened scrutiny during due diligence. Here are some best practices:
Maintain accurate records: Records will be scrutinized during due diligence, audits, and regulatory investigations. Keep plan records — including participant contact information — complete, organized, and ready for review.
Leverage recordkeepers and third-party providers: Coordinate with all service providers to confirm the use of every available tool to locate lost and missing participants.
Address uncashed checks promptly: Uncashed checks could reflect delivery issues, participant confusion, outdated contact information, or the participant’s death or incapacity. Establish consistent follow-up processes, make reasonable attempts to reach out to participants, and document all actions taken.
Today’s Thought Leaders
About Peter Ryan
Partner, Co-founder, & CPA
Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.
About Sagarika Susarla
Finance Consultant
Sagarika Susarla is a Finance Consultant at Ryan & Wetmore. She focuses on supporting clients through financial analysis, tax consulting, and building practical tools that improve efficiency and decision-making. Sagarika earned her MBA from The George Washington University and her undergraduate degree in Finance, with a concentration in Corporate Finance.
A lost or missing participant is generally a former employee, beneficiary, or alternate payee who cannot be located or who has stopped responding to communications regarding their retirement benefits.
Missing participants can create fiduciary, compliance, and administrative challenges that may increase transaction risk, delay plan transitions, or require additional due diligence.
Indicators include returned mail, uncashed distribution checks, inactive accounts, outdated contact information, and repeated failures to respond to communications.
Plan sponsors have fiduciary responsibilities to make reasonable efforts to locate participants and maintain documentation of those efforts.