Plan fiduciaries would like guidance from the Department of Labor on what they should do when retirement benefit payments go uncashed by participants.
A recommendation from the Labor Department's ERISA Advisory Council will soon be made public on 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.
It's a complicated issue and one that's difficult to examine in isolation, sources said.
"You can't walk into someone's house and force them to accept a check," said Kevin Walsh, a principal at Groom Law Group LLP in Washington. "So some of these solutions seem to assume you've already done everything you can for missing participants. These uncashed checks exist because people are remaining missing."
Uncashed checks occur predominately in situations where 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, said William Jeffries, vice president of operations for Empower Retirement, Overland Park, Kan., during testimony before the council in August.
Currently, there are a few options plan fiduciaries have when in possession of an uncashed distribution check, including 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; placing it in an individual retirement account or annuity; forfeiting the money; or keeping it in the plan, Mr. Walsh said. Fiduciaries of both defined benefit and defined contribution plans aren't comfortable with any of the options for varying reasons, he added.
An American Benefits Council survey of 55 plan sponsors last year found that only four had ever used the escheatment process for any retirement benefits. Moreover, it found that 67.3% had left money in the plan, 25.5% had rolled the money over to an IRA or annuity and 49.1% had forfeited the money with a right of restoration if the participant or beneficiary was later found.
"Our retirement system doesn't work if people don't get their benefits, but it also doesn't work if fiduciaries are held to an impossibly high standard of constantly having to search, use limitless resources and hunt down every participant," Mr. Walsh said.
To the frustration of the plan sponsor community, the Labor Department has not issued guidance on what exactly a sponsor must do in search of a missing participant — and for how long.
The Department of Labor's Employee Benefits Security Administration recovered $2 billion from its investigations during fiscal year 2019, up from $1.1 billion in 2018. Of the $2 billion recovered in enforcement actions, roughly $1.5 billion was from its Terminated Vested Participant Project, which encompasses missing participants.
But in 2019, the council was not examining what steps are necessary or appropriate in locating missing participants, instead focusing on state unclaimed property funds.