New DOL Guidance Addresses Unclaimed Small Retirement Plan Payments

On January 14, 2025, the Department of Labor (DOL) issued new guidance (FAB), which provides, a temporarily measure, without penalty, whereby  retirement plan fiduciaries  may voluntarily transfer ERISA covered retirement benefit payments of $1,000 or less (including uncashed checks) owed to missing plan participants or beneficiaries to state unclaimed property funds provided certain conditions are met. Pending further guidance, the DOL will not pursue ERISA 404(a) violations against plan fiduciaries complying with specific conditions laid out in the temporary policy.

Previously, the DOL allowed retirement plans to issue a check directly to the participant or transfer the small-balance payments to individual retirement accounts (IRAs). However, plan fiduciaries often struggle with the issues this creates when a retirement plan participant’s check remains uncashed and becomes stale dated after six months or to finding IRA providers that will accept small balances. When they do, the IRA balances often decrease over time because fees outpace investment returns.

The DOL’s temporary nonenforcement policy applies to balances of $1,000 or less provided that:

• The plan fiduciary determines that transferring the balance to a state unclaimed property fund is a prudent destination for the balance.
• The plan fiduciary has implemented a prudent program to find missing participants consistent with the and has been unable to locate the missing participant or beneficiary after taking reasonable steps to do so.
• The selected unclaimed property fund is located in the state of the last-known address of the participant or beneficiary.
• The plan’s summary description explains that the benefits of missing participants or beneficiaries may be transferred to an “eligible state fund” and provide a plan contact for additional information.
• The state unclaimed property fund qualifies as an “eligible state fund.” The FAB sets forth nine conditions, listed below, for an unclaimed property fund to qualify as an eligible state fund.

Per the FAB, an “eligible state fund” is a state unclaimed property fund that:

• Acts as the custodian of the funds and allow claims to be made and paid in perpetuity;
• Does not impose fees or other charges;
• Maintains a searchable website showing the name of the missing participant or beneficiary and the plan in the search results and allows for electronic claims;
• Provides the public with the ability to make inquiries regarding unclaimed property by physical mail, electronic mail and telephone;
• Participates in the National Association of Unclaimed Property Administrators (NAUPA) MissingMoney.com website or similar database;
• Streamline the claims process;
• Conducts annual searches for updated addresses for missing participants and beneficiaries for amounts of $50 or more, and if an updated address is found, provides written notice to the owner that the state fund is holding the money;
• Permits a plan whose fiduciary has transferred the unclaimed property to the state to pay reappearing participants or other payees directly, and obtain reimbursement from the state; and
• Participates in the States’ Unclaimed Property Clearing House.

A plan fiduciary may rely on a representation by a State Treasurer that the “eligible state fund’ meets each of the above requirements.

As a reminder, this is a temporary and voluntary option for plan fiduciaries to resolve small balances owed to missing participants. Navigating the complex requirements and compliance changes for unclaimed retirement benefits continues to challenge plan fiduciaries and this option is sure to make it even more challenging . MarketSphere can help ease the burdens facing plan fiduciaries responsible for acting in the best interest of plan participants and beneficiaries. Learn about MarketSphere’s Retirement Reunification Services and contact our team to get started.

*Content contained in this article is considered accurate as of the publish date.