The Missing Participant and the Fiduciary's Paper Trail
A 412(i)-style fully insured defined benefit plan terminated five years ago. The trustee, a local bank, distributed most benefits but could not locate one participant, Elena, whose vested benefit was $18,000. The bank sent one letter to her last known address, which was returned, and then did nothing. The plan's assets were otherwise fully distributed, and the plan filed a final Form 5500 showing zero assets. The bank's trust officer retired, and the file was boxed. Elena has now surfaced and demands her benefit plus interest. The employer, which sponsored the plan, says the bank was the fiduciary and should pay. The bank says the employer signed off on the final 5500. The plan document named the employer as the plan administrator. The employer asks what fiduciary duties were breached, who is liable, and what the exposure is.
1. Identify the fiduciary breaches and the responsible parties.
Read the worked answer
The trustee and the plan administrator both had fiduciary duties. The trustee breached the duty of loyalty and prudence by making only a single attempt to locate Elena and then abandoning the search; ERISA requires a reasonable, documented search process (e.g., certified mail, checking with the Social Security Administration, relatives, and public records). The plan administrator breached its duty by filing a final Form 5500 representing that all assets were distributed when a known participant's benefit remained unpaid. The employer as plan administrator is a named fiduciary and cannot shift all liability to the bank merely because the bank was trustee; both can be liable, and the employer has a duty to monitor the trustee. The bank's argument that the employer signed the final return is not a defense; if anything, it shows the administrator knew or should have known the plan was not fully wound up.
2. What is the likely exposure and how should it be remediated?
Read the worked answer
Elena is entitled to her $18,000 vested benefit plus an appropriate earnings adjustment for the period of delay. The plan should calculate what the benefit would have earned had it been distributed and invested at a reasonable rate, and pay that amount. Because the plan has no assets, the employer and trustee may need to fund the payment; fiduciary breach liability under ERISA §409 runs to the plan, and the participant can sue for equitable relief and make-whole relief. Remediation should include: locate Elena and pay the corrected benefit, document the search efforts retroactively where possible, consider an EPCRS correction for the failure to distribute, and review the final Form 5500 filing. The employer should also assess whether the plan's fiduciary liability insurance or the bank's bond covers the shortfall, and whether a voluntary fiduciary correction program submission is appropriate.