Missing retirement plan participants–and the payments owed them–has been a hot button issue for the Department of Labor for years, with plan sponsors urged to put more attention into location efforts. Now, temporary guidance is in effect, which allows sponsors to remove accounts with less than $1,000 from the plan. Read on for specifics.
Transfer of Benefits Under $1,000…
Field Assistance Bulletin 2025-01, recently released by The Department of Labor, contains important, temporary guidance related to small retirement payments owed to missing participants, along with a reminder to plan sponsors to implement the 2021 Best Practices for locating missing participants:
The central function of an ERISA-covered pension benefit plan is to provide promised retirement benefits to participants and beneficiaries. To assist plans in fulfilling this function, the Department of Labor has undertaken a nationwide compliance initiative focused on practices to maintain complete and accurate census information, communicate with participants and beneficiaries about their eligibility for benefits, and implement effective policies and procedures to locate missing participants and beneficiaries. In 2021, the Department issued guidance to pension plan fiduciaries on best practices for ensuring that plan participants and beneficiaries receive promised benefits when they reach retirement age.
Attorneys specializing in ERISA at McCarter & English offer this summary of the January 2025 temporary enforcement policy for the transfer of retirement benefits under $1,000:
The Bulletin temporarily permits ERISA fiduciaries to transfer retirement benefits of under $1,000 to a state unclaimed property fund. The last formal guidance in this area came under DOL Field Assistance Bulletin 2014-01, which indicated that the preferred method for paying out benefits to missing participants in terminating defined contribution plans is via a rollover to an individual retirement account (IRA) opened in the participant’s name. In practice, however, many employers sponsoring retirement plans have encountered difficulties finding IRA providers willing to accept small accounts, and employers have also been wary of providers that do accept those rollovers due to the risk that the fees charged would quickly deplete the account.
According to McCater & English, retirement plan fiduciaries who decide to transfer missing participant benefits of $1,000 or less, which can include uncashed checks, to a state’s unclaimed property account, must “ensure that the state’s unclaimed property fund is a prudent destination for the “participant’s benefit payment,” and:
The fiduciary must also have a prudent program in place to attempt to locate the missing participant, and the state selected for the transfer of the unclaimed property must be the state of the participant’s last known address. Finally, the state unclaimed property fund must meet other DOL requirements, including a requirement to update the plan’s summary plan description to include the possibility of transfer of benefits to an unclaimed property fund. While the Bulletin indicates that this nonenforcement policy is temporary pending further guidance, it does not provide an end date to the policy.
Good To Know
Retirement plan sponsors are responsible for ensuring that all plan participants receive their benefits on schedule. Because missing participants pose chronic and serious challenges, the Department of Labor encourages proactive attention to the associated problems. Specifically, in 2021, the Employee Benefits Security Administration (EBSA) instructed retirement plan fiduciaries to: “Maintain complete and accurate census information; Communicate with participants and beneficiaries about their benefit eligibility; and, Implement effective policies and procedures to locate missing participants and beneficiaries.” Plan sponsors will find it helpful to brush up on EBSA’s guidance in three parts, which is available right here: Best Practices; Compliance Assistance; and, Field Assistance Bulletin.
In addition to following federal guidelines on missing participants, plan sponsors also need to clearly document their related actions, as Thomas Hawkins at the Retirement Plan Clearinghouse reminds us: “If a search for a missing participant is not properly documented, is it a diligent search? To regulatory authorities who may scrutinize a plan sponsor’s search efforts, the answer is decidedly “no.” For a regulator to consider a search to be diligent, it must be well-documented, and to do otherwise can result in audits, penalties and increased fiduciary risk.”
Another wise practice for plan sponsors is updating protections for themselves. Although it’s common to outsource administrative and investment services, as fiduciaries, sponsors remain responsible (and personally liable) for the plan. Remember, fiduciary liabilities can be reduced, but never eliminated.
Unforeseen challenges arise all the time for plan sponsors, and seemingly small oversights trigger costly ERISA regulatory action and litigation. In fact, the average ERISA claim costs ordinary businesses over $1.2 million in legal fees. That’s why Colonial Surety makes protection affordable for plan sponsors and their businesses. Armed with our Fiduciary Liability coverage, for a few dollars a day, you’ll have defense costs and penalty limits up to $1,000,000, if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Cyber liability coverage is included at no extra cost, providing additional protection–for the plan and company–against regulatory actions related to data and privacy, as well as expert response services.
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