But if participants can't be located or don't respond to inquiries, regulations require that their money sit in cash, rather than in riskier investments with the potential for greater growth. Over the years, the value of cash accounts can be eroded by inflation and fees down to almost nothing. When the owner of an IRA turns 70 and a half (an age set in U.S. tax law), many states can even start trying to confiscate abandoned money. The longer your account is lost, Dunne said, “the less likely you’re going to end up with the money.”
The PBGC program, which is expected to be launched in 2018, will be competing against private firms such as Dunne’s. “These companies are not going to go away. They’re still going to have a niche,” said Reeder. He said the PBGC will offer an “attractive option.”
It will keep the cost low, he said—a one-time fee of $35 on accounts of more than $250, zero on accounts of less than that amount—and guarantee that savers receive at least the “federal midterm rate,” an interest rate that varies from month to month and is now above 1 percent. And it will give account holders the option of turning balances above $5,000 into a lifetime income stream similar to a traditional pension.
With some effort, finding people is actually easier than ever. Private search services can cross-reference property records, mobile phone accounts, and other online data to find most people. And employers have a legal obligation to regularly search for missing 401(k) and pension participants.
But Medeiros, of the Pension Action Center, said companies often don't keep good records on pension holders. “Defined-benefit plans have not made much of an effort to find people,” Medeiros said. “They sit back and wait for people to claim their benefits.”
Retirees often need extensive records to prove they’re owed a pension, including decades-old tax returns and plan statements, she said. For 401(k) plans, proving you own an account isn’t the difficult part. It’s remembering to go looking for the $400, or $4,000, you left behind in an old account before it’s eaten up by fees or taken by the state.
Reeder said employers often just “go through the motions” of finding beneficiaries. When so-called missing accounts are transferred to the PBGC, the agency can often find those participants immediately with modern search tools.
“All employers are not as eager to find these people as they should be,” he said.
The U.S. Department of Labor seems to agree. In January it said it was expanding an investigation of large pension plans failing to locate participants.
Then there are the people who don't want to be found. They may be trying to escape creditors or get out of child support obligations. More than a decade ago, the PBGC’s missing-participants program tracked down a participant in the Federal Witness Protection Program, Reeder said. The agency then worked with the authorities to plug that gap.
This article was provided by Bloomberg News.