Uncashed 401(k) Distribution Checks Gets DOL Direction

Financial Services TechnologyUncashed 401(k) Distribution Checks are now a front burner item for the DOL.  Retirement plan sponsors are slated to receive letters from the Department of Labor.  These letters will ask plan sponsors to reunite uncashed distribution checks with the participants they belong to.  This, according to a recent InvestmentNews article.

Following on the DOL guidance on uncashed 401(k) distribution checks, regarding missing participants from earlier this year, the DOL is now concerning itself with uncashed checks.  This specifically addresses checks previously issued to retirement plan participants.  These checks typically come from a retirement plan’s former recordkeeper.  With consolidation sweeping the recordkeeping industry and growing numbers of plan sponsors considering switching recordkeepers as a result, uncashed checks are a top priority.  The DOL Guidance on uncashed 401(k) checks is something retirement plan fiduciaries should pay careful attention to.  This is especially brought to light when a plan changes recordkeepers.  The DOL is even reaching out on small distributions.  The DOL Guidance on Uncashed 401(k) Distribution Checks view it as a fiduciary responsibility.  This was highlighted by Matthew Hawes, a partner at global law firm Morgan Lewis, who was quoted in the InvestmentNews article.

According to a post from Morgan Lewis co-authored by Hawes and Emily Rickard, an associate at the firm, cited in InvestmentNews, “…the DOL is now urging retirement plan fiduciaries to recoup amounts held by former recordkeepers or paying agents that might have been overlooked during the transition of the service provider relationship to a new vendor.”  Plan fiduciaries should carefully review the agreements they have in place with plan and service providers to ensure that participant distribution checks are routed appropriately.

Plan sponsors who have received letters from the DOL about recouping funds aren’t being held to a deadline to do so.  However, the DOL has asked for confirmation when participants have received their money.  According to the Morgan Lewis post, the DOL expects plan fiduciaries to return even small amounts to the plan trust.

In addition, plan sponsors should not transfer uncashed distribution checks to state unclaimed property funds, because state laws are trumped by ERISA.  Until now, there was no clear path for plan sponsors to follow in getting participants reunited with their funds.  In fact, in some states, only about 3% of people with unclaimed 401(k) assets get their money back within two years of it being reverted to the state, according to a paper published earlier this year and cited by InvestmentNews.


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