DOL Announces Enforcement Relief for Missing Participants

New policy offers plan fiduciaries option for handling small payments when beneficiary cannot be located
DOL missing participants bulletin
Image credit: © Mark Gomez | Dreamstime.com

Retirement plan fiduciaries now have an option to help manage small benefit amounts owed to individuals who cannot be located as a result of the Department of Labor’s Employee Benefits Security Administration today announcing an enforcement relief policy.

“This policy gives fiduciaries an additional option for handling small outstanding retirement benefit payments owed to missing participants and beneficiaries.”

EBSA Secretary Lisa M. Gomez

Under the policy, the department will not take action under the fiduciary duty provisions of the Employee Retirement Income Security Act (ERISA) against fiduciaries who transfer entire benefit payments owed to missing participants of $1,000 or less to state unclaimed property funds, if certain conditions are met.

“This policy gives fiduciaries an additional option for handling small outstanding retirement benefit payments owed to missing participants and beneficiaries,” said Assistant Secretary for Employee Benefits Security Lisa M. Gomez. “Our goal is to reunite participants and beneficiaries with their retirement benefits and this new policy will support fiduciaries’ ability to choose this option when prudent and provide individuals with another option for finding benefits that may be owed to them.”

To qualify for relief under the new policy, fiduciaries must meet the following conditions:

• Meeting conditions designed to protect the interests of the missing individuals.
• Adopting best practices for locating missing participants and beneficiaries.
• Selecting state unclaimed property funds that meet the minimum standards outlined in the policy.

As stated in Field Assistance Bulletin 2025-01: “Missing Participants and Beneficiaries—Small Retirement Benefit Payments Transferred to State Unclaimed Property Funds From Ongoing Pension Plans, if a participant or beneficiary is missing, ERISA requires plan fiduciaries to exercise prudent and loyal judgment with respect to handling retirement benefit payments.

In the past, the EBSA has identified IRAs as the preferred destination for a distribution from a retirement account or benefit owed to a missing participant or beneficiary from a terminated defined contribution plan.

However, the Department also recognized that an IRA may not always be available for a distribution and has provided fiduciaries of terminating DC plans with the option of transferring distributions to a state unclaimed property fund or an interest-bearing federally insured bank account under certain circumstances. Before making such a decision, the fiduciary must prudently conclude that the distribution is appropriate despite the potential considerable adverse tax consequences to the participant or beneficiary.

The bulletin goes on to note that EBSA has continued to engage with a range of stakeholders on issues surrounding missing participants, including representatives of retirement plans, employers, financial services providers, consumers, and state unclaimed property funds.

The ERISA Advisory Council 2019 report recommended that the Department issue guidance on voluntary transfers of amounts attributable to missing participants’ uncashed benefit checks from pension benefit plans to state unclaimed property funds that meet certain minimum standards.

The report, which was premised on the lack of a federal registry or clearinghouse for reporting or handling uncashed retirement checks at that time, concluded that state unclaimed property funds “have a number of features that may increase the likelihood that [m]issing [p]articipants will be reunited with their lost retirement savings.”

Among other considerations, the report cited a 2014 GAO Report on mandatory distributions rolled over to IRAs that found that with respect to the IRAs analyzed, fees often outpaced returns and account balances decreased over time.

The bulletin also notes that pursuant to SECURE 2.0, the Department has established the Retirement Savings Lost and Found, an online searchable database allowing participants and beneficiaries of covered retirement plans to search for the contact information of their plan administrator in order to make a claim for benefits owing to the individual under the plan. The database also allows the Department to directly assist individuals in locating their respective plan administrator as well as making updates to plan contact information as necessary to keep that information current.

As part of that project, the Department intends to consider more formal guidance related to voluntary transfer of retirement benefit payments from ongoing pension benefit plans to state unclaimed property funds. In anticipation of such activity, the Department established a temporary enforcement policy, described in the bulletin as such:

Pending further guidance, the Department will not pursue violations under ERISA section 404(a) in connection with the voluntary decision to transfer retirement benefit payments (including uncashed checks) owed to a missing participant or beneficiary from an ongoing pension benefit plan to a state unclaimed property fund, provided the present value of the participant’s or beneficiary’s nonforfeitable accrued benefit is $1,000 or less and the plan fiduciary complies with the applicable conditions set forth in this memorandum. For purposes of determining the present value of the benefit, the fiduciary must disregard the amount of any outstanding plan loans but must include rollover contributions described in Internal Revenue Code section 411(a)(11)(D).

Conditions

1. The plan fiduciary determines that the transfer to a state unclaimed property fund is a prudent destination for the participant’s or beneficiary’s retirement benefit payments;

2. The plan fiduciary has implemented a prudent program to find missing participants consistent with the Department’s Best Practices for Pension Plans,(18) and nevertheless has been unable to locate the participant or beneficiary;

3. The plan fiduciary selects the state unclaimed property fund offered by the state of the last known address of the participant or beneficiary;

4. The plan’s summary plan description explains that retirement benefit payments of missing participants or beneficiaries may be transferred to an eligible state fund and identifies the name, address, and phone number of a plan contact for further information concerning the eligible state funds to which the retirement benefit payments are transferred; and

5. The state unclaimed property fund qualifies as an eligible state fund (see the bulletin for further details).

SEE ALSO:

• DOL Starts Collecting Data for Retirement Savings Lost & Found

• 6 Steps to a Strong Missing Participant Policy

• 4 Compelling Reasons for Plan Sponsors to Adopt Auto Portability

Brian Anderson Editor
Editor-in-Chief at  | banderson@401kspecialist.com | + posts

Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.

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