Thomas J. Mackell Jr., Chairman of the Board of the Federal Reserve Bank of Richmond, gave a speech in New York at the end of January 2006 in which he announced that he anticipates that defined-benefit plans (i.e. pensions plans) will fade away over the next five years. Today, true to form on his prediction and with the popularity of 401(k) (defined contribution plans), defined-benefit plans are all but disappearing. In turn, this means more companies are opting to reduce costs by not funding pension plans. According to an article in Money Management Executive.com magazine, more than half of the Fortune 100 companies have shifted toward defined contribution only plans.

With people changing and losing jobs more than ever, it means that companies are faced with the challenge and fiduciary responsibility of maintaining 401(k) accounts and information about former employees.

The requirement to maintain ongoing communication with terminated participants is difficult, but essential. A plan sponsor that keeps in touch with its participants can manage the plan’s costs better and avoid the risk of being sued by a terminated employee. It is important to establish a communication program that involves locating missing participants, and helping update the account and/or distribute the funds. Given the state of our current economy, companies may choose to terminate their defined contribution plans. A plan sponsor that is in communication with all its participants will be able to effectively terminate a plan, and in turn save money along the way.

For information about how RCP Solutions can help you find and communicate with missing participants, contact us at 267-607-4120.

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