When
employees with vested account balances terminate employment and, for
whatever reason, cannot be located, they’re commonly referred to as
“lost participants.” Locating these former employees who are
entitled to retirement-plan benefits is a challenging and pressing
problem for plan sponsors. If a plan sponsor is aware of these
important plan provisions and communicates them effectively to
employees from the beginning of their plan participation,
participants are less likely to become missing after they separate
from the employer. Plan administrators must make every effort
to locate a person who is a missing participant.
There are no ideal, easy answers but
here are some suggestions:
Public data sources
-
For a nominal fee,
you can access several public data services available on the
Internet.
Private
investigators
-
Some private
investigators specialize in locating persons with unclaimed pension
funds. Fees vary.
Internal
networking
-
You can post a
notice in the employee workroom or lunchroom stating the company is
looking for former employees who may be entitled to pension
benefits. Current employees may help provide information to
facilitate the search.
Letter to most recent
address of a lost participant -
Make an effort to
determine if the most recent address is still current. Mail letters
with certification or return receipt. Keep this information as proof
that you attempted to contact the person.
Pension Benefit
Guaranty Corporation (PBGC)
-
Contact the PBGC to
locate lost participants within a defined benefit plan. Instructions
on locating missing participants can be found on the Web site at www.pbgc.gov.
100% tax
withholding
-
In recent cases,
employers have withheld 100% of the retirement as tax withholding
presuming the IRS will then notify the participant at tax-filing
time. The IRS hasn’t barred this method and hasn’t issued guidance
on it.
Forfeiting the
vested-account balance
-
If the plan
document allows, the lost participant’s balance can be forfeited and
revert to the employer or plan after a specified time. But you must
maintain accurate records and restore the participant’s benefits if
a claim is made.
Education and
Prevention
-
The most effective
procedure is to ensure that employees are aware of their retirement
benefits when they leave. Have an accurate Social Security
number on file for each person with vested plan benefits. Clear
written communication will ensure that participants are aware of the
importance of informing the employer of address changes. Encourage
employees to withdraw their retirement benefits as soon as possible
from the plan. If you have concerns about missing participants
and available options, please contact us. We will be happy to assist
in implementing a strategy to locate and distribute vested balances.
IRS
Letter Forwarding Program
-
The IRS, in
Rev. Proc. 94-22, offers a letter-forwarding program to help find
lost participants. Under this program, the employer must write to
the missing participant stating whom to contact to obtain retirement
benefits. The service is free if the request is for 49 or
fewer recipients. For 50 or more participants, there is a base
fee of $1,750 plus $.50 per participant.
Click Here
for our sample letter package.
Social Security
Administration Letter Forwarding Program -
If you have 50 or
more lost participants, the Social Security Administration also
offers a letter forwarding service which may be more cost effective
at $3 per participant.
Click here for our sample letter package.
Light at the end of the tunnel...
Establish an IRA
- If
the plan allows, the plan administrator can establish an IRA or
annuity for the participant and transfer the retirement account to
the IRA held on the participant’s behalf. Currently, it is difficult
to find a financial institution willing to accept these funds
without the participant’s acknowledgment. Because employer fiduciary
issues are also involved based on the investment selection, this
method isn’t widely used at this time. However, the recent "EGTRRA"
legislation mandated that participants with balances in excess of
$1,000 (but less than $5,000), who have not consented to a
distribution, must have their distributions rolled over to a
"default" IRA... once the appropriate guidance was made available. It
is assumed that financial institutions will be more willing to
accept these funds once this guidance is available.
OVER THE COUNTER MEDICATIONS
- The IRS expands the tax reduction benefits of
your flex plan!
Based on a September 3, 2003 Revenue Ruling and in
discussions with the IRS, expenses incurred by Flex Plan
Participants for the purchase of OTC medicines and/or
drugs to treat a medical condition are reimbursable from
your flex account upon substantiation of:
- Evidence of the name of the medicine or drug,
the date purchased and the amount paid on a receipt
from independent third party (i.e. store, pharmacy);
- Completion of a Reimbursement Request Form with
OTC purchases detailed line by line which must
specify who the expense is for (employee, spouse or
dependent);
- The participant’s certification that such
medicine or drug is for medical care.
The following three lists will help you determine
which OTC items can be reimbursable by your flex plan
and what additional documentation will be required
before reimbursement is made. The drug must be legal and
legally procured; e.g. it is currently illegal to import
drugs from Canada.
List # 1: Medical-Only
Items:
This “Medical Only” list is a list of OTC drugs that we
have determined are primarily for medical care and that
will be reimbursable in reasonable quantities without a
doctor’s note if you provide the above substantiation.
- Anti-diarrhea medicine, laxatives like Ex-Lax
- Antacids
- Allergy medicine
- Pain Reliever
- Cold Medicine
- Menstrual cycle products for pain and cramp
relief
- Cough Drops, throat lozenges, sinus medication,
nasal sinus sprays
- Nicotine Gum or patches for stop-smoking
purposes
- Special ointment or cream for sunburn (not just
regular moisturizers)
- Ben Gay, Tiger Balm, and similar products for
muscle pain or joint pain
- Pedialyte for ill child’s dehydration
- Items that used to be a prescribed drug are
usually reimbursable
- First aid cream, Bactine, special diaper rash
ointments, calamine lotion, bug bite medication,
wart remover treatments
- Visine and other such eye products, Contact Lens
cleaning solution
- Suppositories and creams for hemorrhoids
- Sleeping aids
- Motion Sickness Pills
- Bandaids, bandages, guaze pads, first aid kits,
cold/hot packs for injuries
- Hydrogen peroxide, rubbing alcohol
- Liquid adhesive for small cuts
- Reading Glasses
- Carpal tunnel wrist supports
- Thermometers (ear or mouth)
- Incontinence supplies
- Nasal strips
- Diabetic Test supplies
- Blood Pressure Monitor
- Crutches
- Take home screening tests including kits for
detecting colon cancer, hepatitis C and HIV.
List # 2: “Dual Purpose”
Items Requiring Doctor’s Diagnosis and Recommendation:
“Dual Purpose” OTC drugs are ones that are deemed to
have both a medical purpose and a personal/cosmetic or
general health purpose. OTC drugs on this list that will
be reimbursed only with a doctor’s note stating that
person has a specific medical condition and that the OTC
drug/medicine is recommended to treat it and that the
treatment is not for cosmetic purposes.
- Weight Loss Drugs to treat a specific disease
- Pills for persons who are lactose intolerant
- Orthopedic Shoes and inserts (only the extra
cost over buying non-orthopedic shoes/boots can be
reimbursed). The average cost of non-orthopedic
shoes will be considered to be $25 and
non-orthopedic boots will be $50.00.
- Sunscreen (must have present existence of a
disease such as skin cancer)
- Acne Treatment (most skin care and acne
treatment is NOT reimbursable because it constitutes
a cosmetic procedure. There is an exception if the
procedure is necessary to "ameliorate a deformity
arising from, or directly related to, a congenital
abnormality, a personal injury resulting from an
accident or trauma, or disfiguring disease”)
- Glucosamine/chondroitin for arthritis or other
medical condition. St. John’s Wort for depression.
- OTC hormone therapy and menopause symptom
treatments such as hot flashes, night sweats, etc.
- Medicated Shampoos under narrow circumstances
- Only if a doctor diagnoses the person as
having a specific scalp infection (not just dry
scalp or dandruff) and prescribes a special
treatment to be applied for a limited period of
time.
- Fiber Supplements under narrow circumstances
- Not reimbursable if taken daily as a
supplement to normal diet, but reimbursable if
taken to treat a specific medical condition for
a limited time.
- Dietary Supplements or herbal medicines to treat
a specific medical condition in narrow circumstances
- Example: Doctor tells you to take 1000 MG of
vitamin B-12 daily to treat a specific vitamin
deficiency or to take Vitamin C for Scurvy.
- Dietary Supplements to improve and maintain
general health are NOT reimbursable. (e.g.
one-a-day vitamins)
- Prenatal vitamins
List # 3: Excluded Items:
This is a list of OTC items which are deemed to be
merely beneficial for general health or are cosmetic in
nature. They are NOT eligible for reimbursement under
Flex Plans (FSAs).
- Dietary Supplements
- Nutritional Supplements
- Food Replacements
- Vitamins
- Toiletries and cosmetics such as:
Toothpaste or toothbrushes (including
Battery-powered) even if a dentist recommends using
them because these items are needed by everyone for
general good health.
- Chapstick etc.
- Face creams, deodorants, moisteners and suntan
lotion
- Medicated shampoos and soaps for dry skin, dry
scalp or dandruff.
The above is not a complete list, only a guideline
and subject to modification based on evolving
interpretation of rules and regulations by the IRS.
