New DOL Push for Plan Sponsors to Reconcile Unclaimed Retirement Assets

A new report from the U.S. Department of Labor (DOL)’s Bureau of Labor Statistics found that U.S. workers born between 1957 and 1964 hold an average of 12.4 jobs between the ages of 18 and 54. It’s not just the baby boomers in America’s workforce who are on the move: recent news articles have focused on the relocations of younger workers during the COVID-19 pandemic. These relocations are being attributed to the increasingly remote working environment, as well as the search for better employment opportunities. The job-switching trend doesn’t show any signs of slowing down, as over 25% of workers in the recent Prudential Pulse of the American Worker Survey said they plan to change jobs post-pandemic.

 

A Perfect Storm

As U.S. employees move from job to job over the course of a career, some retirement assets held in employer-sponsored plans get left behind and forgotten. Combine an “out-of-sight-out-of-mind” mentality of on-the-move employees and the force-out provision found in many retirement plans (i.e., the provision requiring sponsors to involuntarily distribute vested account balances below a certain dollar threshold for terminated employees) and the result is a “perfect storm” — distribution checks that are cut to former employees but are never claimed or cashed by those payees.

The reasons why checks remain uncashed vary. A participant may move without notifying the former employer, so the check is mailed to the incorrect address. In addition, a participant may simply forget to deposit or cash a check. Regardless of the reason, as long as a check remains uncashed and the participant doesn’t step forward to claim their vested account balance, the money remains an asset of the plan. Because the participant is no longer an employee of the sponsor and their plan account is already closed, there is the potential for these monies to be less closely monitored. Turnover in plan management and changes in recordkeepers can also contribute to uncashed monies dropping off the plan’s radar — in essence, the monies can become “lost.”

While the cash-out provision only applies to account balances of less than $1,000, the cumulative impact of these checks can add up to substantial numbers. The Department of Labor (DOL) estimated in 2011 that $15 million in retirement plan distribution checks go unclaimed each year.^[1] Reviewing just the ten-year period since the DOL made this estimate, the theoretical accumulation would be approximately $150 million. Given the potential magnitude, it comes as no surprise that unclaimed checks are a focus of the DOL.

 

New DOL Initiative

In 2021, the DOL initiated a direct letter-writing campaign to inform certain plan sponsors of unaccounted-for distribution checks from their plans and urge them to work with the appropriate service providers to reconcile these amounts (which would then reunite plan participants with their distributed, but unclaimed, retirement plan assets). The campaign is considered an expansion of the DOL’s missing participant guidance (issued in January 2021), which outlined the DOL’s perspective regarding best practices for searching for missing participants. The DOL’s guidance also discussed its enforcement process under its missing participant initiative (for more on this earlier 2021 guidance, we invite you to read our previous article).

 

What Do the DOL’s Letters Say?

The DOL has not provided public examples of the letters thus far. What is known about the content of the letters is based on information shared by ERISA legal counsel from letters received by their clients. According to one law firm (Morgan Lewis) who reports having reviewed DOL letters sent to some of its clients, the DOL’s tone in the letters was quite general; the letters cited basic ERISA guidance pertaining to the plan fiduciary’s role in ensuring that plan participants receive all their entitled benefits. From what has been shared, the DOL expects plan sponsors to make a good faith effort to investigate each occurrence of lost or unclaimed funds and provide documentation to the DOL that confirms those funds have been restored to the appropriate individuals, no matter how small the sum. There have been no indications that the DOL has set a deadline for the contacted sponsors.

 

Action Items for All Plan Sponsors

Given this initiative and the DOL’s recommendations made earlier this regarding missing participants, we think it makes sense for all plan sponsors to review their processes and procedures for dealing with uncashed checks and outstanding distribution payments. Steps that all plan sponsors should consider taking include:

• Maintain regular contact with your employees, retirees, and beneficiaries to ensure that the contact information that you have on file is complete and up-to-date. Keep good records of your outreach attempts.  

• Consider whether your plan has any unclaimed plan assets. If needed, contact both current and former recordkeepers of your plan and check for any outstanding unclaimed plan assets. If considering a change in recordkeepers, monitor the detail of unclaimed plan assets before, during and after the provider change.

• Review your plan’s service provider contracts for language that addresses the handling of uncashed checks. Consider whether the process aligns with what regulators have identified as expected best practices, and work with the provider to adjust the process as needed.

 

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[1] Gina Martellacci, CPA, “Uncashed Checks – A Plan Sponsor’s Headache,” December 11, 2012