For a host of legal and practical reasons, the only feasible alternative for disposing of the accounts of missing participants in a terminating 401(k) or other defined contribution retirement plan qualified only in Puerto Rico (commonly known as a “P.R.-only plan”) is, after making reasonable efforts to locate the missing participants, depositing with the proper state unclaimed property fund(s) the retirement money of those participants who cannot be located. Sending the money to the Pension Benefit Guaranty Corporation (PBGC), completing direct rollovers into individual retirement accounts or annuities (IRA), and opening bank accounts for the missing participants generally are not viable options.


P.R.-only plans are generally subject to the provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA) and the corresponding regulatory authority of the Employee Benefits Security Administration (EBSA) of the U.S. Department of Labor. Therefore, in principle, the ERISA regulations and EBSA administrative guidance on the handling of missing participants should apply to terminating P.R.-only qualified plans, just as they do to terminating U.S.-qualified plans. In practice, however, that is not entirely the case.

Relevant ERISA Regulations and EBSA Guidance

Basically, as per 29 C.F.R. § 2550.404a-3 and EBSA Field Assistance Bulletins No. 2014-01 and 2021-01, the fiduciaries of a terminating 401(k) plan may dispose of missing participant accounts as follows:

First, the fiduciaries are instructed to take reasonable steps to locate the missing participants, such as: (1) searching plan and employer records for more current addresses for the missing participants, (2) trying to contact the missing participants’ designated beneficiaries to request updated contact information, (3) using free internet search tools to search for the missing participants and their designated beneficiaries, and (4) sending copies of EBSA’s model Notice of Plan Termination to the missing participants’ last known addresses by United States Postal Service certified mail.

Second, for those missing participants who, after at least 30 days from the Notice of Plan Termination’s mailing, have not been located or have failed to elect a form for the payment of their accounts, the fiduciaries may transfer the money to the PBGC to take advantage of the PBGC’s Defined Contribution Missing Participants Program or roll the money over to an IRA established in the name of each missing participant.

Third, if the preceding two alternatives are unavailable (i.e., the PBGC will not accept the money and the fiduciary cannot find a financial institution willing to open IRAs for the missing participants), the fiduciary can open interest-bearing federally insured bank accounts in the missing participants’ names or, as the alternative of last resort, transfer the money to the unclaimed property fund for the state in which the participants’ last known addresses are located (i.e., escheatment).

Issues Related to ERISA Regulations and EBSA Guidance

The following are reasons why transferring the money to the PBGC, completing direct plan-to-IRA rollovers, and opening bank accounts may not be effective options for dealing with missing participant accounts in a terminating P.R.-only plan.

PBGC Transfers

Pursuant to 29 C.F.R. § 4050.201(a)(1) and ERISA § 4021(a)(2), to be eligible for the PBGC’s Missing Participants Program, a terminating defined contribution plan must be qualified in the United States (i.e., have received a favorable determination letter regarding its qualification under Section 401(a) of the United States Internal Revenue Code of 1986). Since P.R.-only qualified plans are not qualified in the United States, they are ineligible for the Missing Participants Program. In fact, the PBGC expressly indicates that “[i]n general, a Puerto Rico based plan does not meet the 401(a) qualification requirements, and thus is not covered by PBGC, if the trust was created or organized in Puerto Rico.” In accordance with ERISA § 1022(i)(1), all P.R.-only plans have their trusts created or organized in Puerto Rico.

IRA Rollovers

The accounts of a P.R.-only plan, even those of nonmissing participants, cannot be directly rolled over to IRAs located in the United States. Pursuant to Code §§ 402(c)(4) and 402(c)(8), in order for direct plan-to-IRA rollovers to be exempt from federal income taxation, the transferor plan needs to be qualified under Code § 401(a). Purported direct rollovers from a P.R.-only plan to U.S. IRAs would be taxable distributions and could even jeopardize the U.S. tax-exempt status of the transferee IRAs. Accordingly, U.S. financial institutions do not accept direct rollovers of P.R.-only plan accounts into their IRAs.

Direct rollovers into IRAs located in Puerto Rico are also not an option. Pursuant to Section 1081.01(b)(2) of the Puerto Rico Internal Revenue Code of 2011, such rollovers are perfectly valid and exempt from Puerto Rico income taxation. However, following a fairly conservative, but generally accepted, reading of the local IRA regulations, Puerto Rico financial institutions will not open IRAs unless the individuals who will be the ultimate IRA owners are physically present to establish their identities, sign the necessary IRA paperwork, and receive certain disclosures about IRA fees and terms and conditions. Consequently, Puerto Rico financial institutions will not open IRAs for missing participants.

Bank Accounts

For essentially the same reasons that financial institutions will not open IRAs for missing participants (i.e., the missing participants are unavailable to establish their identities, sign documents, and receive certain information), Puerto Rico financial institutions also will not open bank accounts for missing participants.

This leaves escheatment as the only feasible alternative.

Puerto Rico Unclaimed Property Fund

As per 29 C.F.R. § 2550.404a-3(d)(1)(ii)(B), a missing participant’s account may be transferred to the unclaimed property fund of the state in which the participant’s last known address is located. Since P.R.-only plans may only cover employees who are bona fide residents of Puerto Rico, ordinarily the last known addresses of most, if not all, missing participants in a terminating P.R.-only plan are within Puerto Rico. Therefore, their accounts may be transferred to the unclaimed property fund managed by the Office of the Commissioner of Financial Institutions of Puerto Rico (commonly known by its Spanish-language acronym “OCIF”).

In practice, the party that transfers the missing participant accounts to OCIF is the trustee of the trust fund forming part of the P.R.-only plan, which is usually a local bank or trust company. These institutions are in direct and constant contact with OCIF and are well-versed on the local unclaimed property rules. For a fee, some even offer missing participant search services, including mailing the Notice of Termination.

Therefore, other than engaging the trustee services, documenting the ultimate disposition of the missing participant accounts, and covering the trustee’s service fees, plan sponsors ordinarily do not get actively involved with this process.

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