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When Austin Industries Inc., a privately held Dallas-based construction company, decided to terminate its defined benefit pension plan in 1995, one obstacle stood in the way: finding all the participants entitled to benefits.
Even after using search firms, the company could not account for 74 of 2,916 participants.
"Some of the individuals had been gone for 10 or 12 years and just didn't keep in touch," recalled Linda Bayless, Austin's benefit manager.
Buying annuities from an insurance company, which then would have the responsibility of finding the participants and paying them promised benefits, was not practical because of the small amount of benefits involved. On average, the participants each were entitled to a little more than $900.
And banks were not interested in establishing accounts for the missing participants because they lacked signature cards for them.
But thanks to a new federal program-created under a 1994 federal law and put into place last year-Austin and several hundred other employers have been able to terminate their pension plans while shifting the responsibility for finding so-called missing participants to the Pension Benefit Guaranty Corp.
In all, 351 employers terminating pension plans with missing participants have given the PBGC $4.2 million. The PBGC as of last month has paid about $320,000 to 210 participants it has located.
"The PBGC program solved our missing participant problem and allowed us to terminate our pension plan. Otherwise, we would have a real problem getting banks to set up accounts or insurers to sell annuities at a reasonable price for such small amounts," said Ms. Bayless.
Indeed, the PBGC's pension search program is drawing raves from benefit consultants who have worked with employers on pension plan terminations.
"This is a very good effort by the PBGC. This program is a winner," said Dick Joss, a resource actuary with Watson Wyatt Worldwide in Bethesda, Md.
"On balance, this is a heck of an improvement over the old way. This is a nice legal way of taking care of a handful of people that you don't want to fool with," said Colin England, a managing consultant with A. Foster Higgins & Co. Inc. in Washington.
The PBGC's pension search program is a congressional response to a problem that for years had dogged employers terminating fully funded pension plans. Federal law requires employers to locate and pay promised benefits to participants before their plans can be terminated.
For most pension plan participants, this requirement is not a problem. Employers typically know where vested employees live. Similarly, employers paying pension benefits to retirees have their addresses.
Problems emerge, though, when dealing with so-called deferred vested participants-those employees who left the company with a vested benefit but are not yet eligible to begin receiving benefits, typically because they have not reached the plan's normal retirement age.
Often, those individuals move and haven't supplied their former employers with their new addresses.
"This is a very common situation with individuals who leave a company in their 30s and 40s. They haven't kept the company's benefits department informed of where they live," said Mr. England.
"You have an individual who terminates employment at age 45. The benefit is too large to cash out. It may be 20 years before he reaches normal retirement age. There may be a lot of moves, but it may take only one move for an address to get zapped," noted Mr. Joss.
Federal law, though, requires employers terminating fully funded pension plans to distribute plan benefits to all participants before the termination can be completed. While the plan administrator can purchase an annuity or deposit funds with a bank, finding companies willing to accept those funds-typically for very small benefits-has not always been easy.
But the PBGC's missing participant program gives employers terminating pension plans another option: They can simply transfer money for the missing participant's benefit to the PBGC and the federal agency will pay the benefit when the individual is located.
However, before money can be transferred to the PBGC, the employer, or plan administrator must conduct a diligent search for the missing participants.
Among other things, the plan administrator has to begin the search no sooner than six months before issuing an intent to terminate the plan.
The plan administrator must use a commercial locator service to search for the missing participant and is required to contact any beneficiaries of the missing participants if their addresses are available.
If those criteria are met and the missing individuals still are not found, the plan administrator then will provide the PBGC with information on the missing participant, the benefit owed, including the starting date and any named beneficiaries. Plan administrators determine the amount of money to be sent to the PBGC based on plan terms and PBGC regulations.
An employer also can buy an annuity-if one is available-for the missing participant and give the PBGC information on the missing participant and the name of the annuity's insurer.
In either case, it is then is up to the PBGC to find the missing participants. In its search efforts, the PBGC uses commercial locator service companies, phone directories, telephone directory databases and writes letters to other plan participants. It also works with local media to develop stories listing the names of missing participants.
In addition, the PBGC and the Department of Labor have posted pages on the Internet listing missing participants' names.
"We make every effort to locate the missing person. We don't give up, no matter how long it takes. We will find these people," said PBGC Deputy Executive Director and Chief Operating Officer Joseph Grant.