When an employee leaves the company, part of the exit process should include information on their plan benefits. It is a good time to double check that a valid beneficiary form is on file, including contact information for the beneficiaries. Participants should be informed of their responsibility for keeping the company advised of any changes in address or contact information. The participant should also understand the need to let the company know of any major life events or beneficiary updates, and who to contact at the company.
Failure to keep up to date information for former employees can lead to several issues. The most obvious one is the inability to locate them once they become eligible for a distribution. This can become even more complicated if the participant has passed away. In addition, some life events, such as marriage to another person who holds company stock, may affect the 409(p) Anti-Abuse Testing for S Corporations. Marriage or divorce may affect the validity of a beneficiary election, or if a listed beneficiary passes away.
According to an October 2017 letter sent by the American Benefits Council to the Department of Labor (DOL), DOL auditors have been aggressive in investigating the process that plan sponsors follow when dealing with missing participants. Having a good system in place to track former employees is more critically necessary than ever to ensure that they do not become lost participants.