The DOL recently began asking retirement plan sponsors to address the issue of uncashed distribution checks, according to one law firm.
Multiple clients of the firm have received letters from the Department of Labor alerting them about uncashed checks issued to participants, often by a company that previously was the plan’s record keeper, said Matthew Hawes, partner at Morgan Lewis. Late last week, Hawes and a colleague, Emily Rickard, an associate at the firm, published a post on the topic.
“The DOL has been reaching out even on very small benefits,” Hawes said. “The DOL’s view is clear here, in that they don’t care about the number of digits — they care about the underlying issue.”
It’s something that plan fiduciaries should be paying attention to, especially when the 401(k) or other plan changes record keepers, Hawes said.
“The DOL is talking to all plan fiduciaries here,” he said. “They view this as a fiduciary responsibility.”
Through the “letter-based initiative, the DOL is now urging retirement plan fiduciaries to recoup amounts held by former record keepers or paying agents that might have been overlooked during the transition of the service provider relationship to a new vendor,” the Morgan Lewis post read.
The letters sent to plan sponsors have not included deadlines for recouping the funds, although the DOL is requesting confirmation that the participants are reunited with their money, according to the law firm.
“While fiduciaries might conclude the cost of locating the participant or beneficiary to whom the uncashed amount is owed might exceed the value of the benefit itself, the DOL has made it clear that it expects fiduciaries to undertake efforts to return even small amounts to a plan’s trust,” the post read.
The agency’s effort appears to be an extension of its focus on “missing” participants. Early this year, the DOL issued guidance for plan sponsors on finding participants they’ve lost track of — often former employees who moved and haven’t provided the company with current contact information.
Plan fiduciaries should review the policies and procedures outlined in agreements they have with plan and service providers, the law firm noted.
The DOL did not respond to a request for comment on the letters.
One group that represents employers, the Erisa Industry Committee, has not heard from any members about receiving letters from the DOL about uncashed checks, a spokesperson said in an email. However, the group testified before a DOL advisory council on the topic in 2019, noting that guidance was needed.
Plan sponsors have often been advised not to transfer uncashed checks to state unclaimed property funds, in part because state laws governing those practices are preempted by the Employee Retirement Income Security Act, ERIC stated at the time. Sponsors didn’t have a clear path to follow for trying to reunite people with their checks, the group noted.
Turning money over to states in most cases has not been an efficient way to do that. A paper published earlier this year found that in some states, only about 3% of people with unclaimed 401(k) assets reclaim them within two years of the money being escheated.
Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.