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Interconnected Disconnections: When Former Employees and their Retirement Plans Can’t Find Each Other

When I was in high school I was very lucky to be able to go on a school trip to France with a bunch of other American students. One day we were touring a market in in the South of France and, eager to practice what I had learned in French class, I stopped at a stall and began striking up conversation with a very patient local vendor. After what seemed like only a few minutes, I turned to rejoin my student group but they were gone. So here I was, in a foreign place with limited language proficiency, wandering around on my own, unable to reconnect with my group. One minute it was sunflowers and olive oil soap, and the next minute it was sheer panic. While I searched through crooked streets and stalls looking for my teacher, he did the same until we finally bumped into each other in the middle of the sidewalk.

This is sort of like what happens with retirement benefits. Sometimes a retiree or worker can’t find the retirement plan that has her benefit and is frantically searching for her lost pension. And sometimes the plan is looking for a former employee so it can pay out a benefit it owes.

There are three interconnected issues we hear about that all involve a retiree and a retirement plan struggling to find each other.

Issue 1: Lost pension plans: What happens when a worker or retiree can’t find a pension plan?

This is one of the most common scenarios we and the pension counseling projects hear about.  A lost plan scenario occurs when an employee reaches retirement age and tries to contact her company or union retirement plan to claim the retirement benefit she earned but can’t.  Maybe the employer just changed its address and phone number. Or maybe the employer changed its name.  Or maybe, in this fast-paced economy, the employer restructured or merged with another company or went out of business.

The important thing to know is that retirement benefits don’t just disappear.  Federal law requires retirement plans to pay the benefits that are owed, and there’s even a federal insurance program (see PBGC.gov) that backstops certain retirement benefits when the plan doesn’t have the money to pay them out.  The six pension counseling projects, which serve 30 states, are really good at tracking down lost plans, so if you think your plan is lost give us a call at (202) 296-3776 and we can refer you to one. If you’re not in one of the states covered by the counseling projects you can get help through the Employee Benefits Security Administration by calling (866) 444-3272.

Issue 2:  Missing Participants: What happens when a pension plan can’t find a retiree?

Under federal law a retirement plan has to begin paying out a retiree’s benefit when she reaches a certain age.  Sometimes, when employees have moved, the company or pension plan can’t find them. They are required by law to take “reasonable steps” to find these retirees, but if that doesn’t work the benefits will stay in the plan rather than getting distributed.

A recent Department of Labor investigation revealed that many plans don’t even make a reasonable effort to locate missing participants, which means millions of dollars in earned retirement benefits aren’t getting paid out to their rightful recipients. So we recommend being proactive and not waiting for your plan to find you.  If you move or if any of your contact information changes call your former employers and retirement plans to make sure they have your current address and other contact information. In fact, even if you haven’t moved, it’s not a bad idea to call them once a year anyway to make sure they have your information. You can also use this call as an opportunity to find out if their information has changed.

Also, the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures pension benefits, offers a Missing Participants Program to help retirees and retirement plans connect.  You can learn more about it here.

Issue 3: Omitted participants: what happens when an insurance company doesn’t have the right information?

When an employer goes out of business or otherwise decides to terminate its retirement plan it still has to make sure everyone who earned a benefit gets paid.  Folks in 401(k) plans and other individual account plans will typically get a lump sum distribution or rollover of their entire account balance. But when a healthy pension plan is terminated, it is required to purchase an annuity from a private insurance company to cover the benefit. When a poorly funded pension plan terminates, then the responsibility to pay the benefits falls on the PBGC.

We hear frequently from retirees who reach out to the private insurance company responsible for paying annuities under their terminated pension plan only to be told it has no record of them and claims not to owe them a benefit.  This happens because, for whatever reason, the retiree’s name has been left off the list that the pension plan handed over to the insurance company providing the annuities, and now the pension plan (and its records) is gone.  Retirees in this situation are referred to as “omitted participants.”  These are some of the toughest cases we get, but the pension counseling projects have lots of experience and have obtained benefits for a number of omitted participants even in difficult cases.  If you think you’re an omitted participant, contact us at (202) 296-3776 for referral to a pension counseling project that may be able to help you obtain your benefit.

When I was in France, there was a moment where I thought I was never going to find my way back home, but eventually it worked out.  And in many of these cases, just like my time in France, we see happy endings when a retiree finds her retirement benefit and the retirement plan finds the retiree!

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