The ERISA Advisory Council has recommended that the Department of Labor publish guidance stating that a transfer of funds from a missing participant's uncashed check to a state unclaimed property program constitutes a payment of benefits under ERISA.
It also recommended the Labor Department issue guidance stating that a plan fiduciary will satisfy its responsibility when making such a transfer if its meets a set of minimum standards. The council did not develop a list of minimum standards, however, and said further work needs to be done to create one.
The council made the recommendation in a 2019 report that was finalized and recently posted on the Labor Department's website.
"We believe that a plan fiduciary should be able to rely on a state's representations or certification that the state has met the to-be-determined minimum standards," the council said. "A plan should not have to evaluate each state's compliance with the criteria. This is an area in which plans generally do not have expertise and, as importantly, in which the cost of the due diligence to the plan will quite possibly exceed the value of the due diligence."
Jan Jacobson, senior counsel for retirement policy at the American Benefits Council, was pleased with the council's recommendations and said it "provides flexibility to employers."
The Labor Department last year asked the council to explore whether there are circumstances in which voluntary transfers of uncashed distribution checks to a state unclaimed property fund advances the department's goal of reuniting missing participants with their retirement savings.
Uncashed checks occur predominately in situations when a participant has neither requested nor consented to a distribution. Checks are sent without consent either because the amount is less than $1,000 and the plan document requires those amounts to be cashed out, due to the IRS' required minimum distribution rules, or because the plan document requires distribution of benefits at normal retirement age, explained William Jeffries, vice president of operations for Empower Retirement, during testimony before the council in August.
One of the few options plan fiduciaries have when in possession of an uncashed distribution check is escheating, or transferring, the money to a state unclaimed property fund, which then attempts to unite the participant, or his or her heir, with the money.
The recommendations were shaped by the testimony of industry stakeholders last summer.
Some witnesses suggested that a federal registry for unclaimed funds should be established and the Pension Benefit Guaranty Corp. could fulfill the role. But in its report, the council said the PBGC is of the view that it does not currently have statutory authority for such a role and, in any event, this issue is outside the council's mandate from the Labor Department. "Some members of the council, however, believe that a federal approach to uncashed checks would be preferable to the voluntary state-by-state approach outlined by the council in this report," the council said.
A Labor Department spokesman could not immediately be reached for comment.