A SPARK [Society of Professional Asset Managers and Recordkeepers] Institute forum reviewed recommendations on missing participants and uncashed checks from the U.S. Government Accountability Office (GAO) and the ERISA [Employee Retirement Income Security Act] Advisory Council.
In a report to the DOL, the council noted that state unclaimed property programs return property to people as often as 72% of the time. It recommended that the Department of Labor (DOL) issue guidance on these programs.
Experts in unclaimed property and ERISA regulation joined GAO representatives to discuss and evaluate solutions to both issues within the regulatory framework. Prior work done by the GAO found that some plans will transfer unclaimed savings to states’ property offices when terminating a plan. A survey showed that in 2016, the 17 states that shared data received about $35 million from retirement plans and individual retirement accounts (IRAs) combined. Data from three service providers revealed that of the $2.25 million they transferred to states, $2.19 million involved savings from terminated plans.
Once the funds have been transferred to states, the survey found that some states may try to maintain value by delaying liquidation of assets or by applying interest, while other states will try to locate owners through direct mailing, manual searching by staff or posting to websites or placing television announcements.
Sherwin Chapman, senior analyst at the GAO, said the IRS and the DOL have taken steps to oversee the transfer of unclaimed retirement savings.
Panel experts from the GAO and the ERISA Advisory Council sent a list of recommendations to both the IRS and the DOL, noting that the IRS commissioner should work with the Department of the Treasury to consider clarifying if transfers of unclaimed savings from employer-based plans to states are distributions, what tax reporting and withholding requirements apply, and when they apply. The IRS recently issued guidance about tax withholding and reporting.
The panel also suggested the IRS commissioner work with the Department of the Treasury to include retirement savings from terminating defined contribution (DC) plans on a list of permitted reasons for rolling over savings after the 60-day rollover period. This would be in a form “consistent with the rules adopted on the taxation of unclaimed retirement savings,” according to the list of recommendations.
Other recommendations offered included having the secretary of labor specify the circumstances, if any, under which uncashed distribution checks from active plans can be transferred to the states.
The GAO and the ERISA Advisory Council said the IRS had agreed with both recommendations it received, while the DOL had neither agreed nor disagreed with the recommendations it received.
Samantha Petersen, founder and CEO of the Petersen Group, which deals with unclaimed property, said there are some alternative solutions plan sponsors can turn to when dealing with missing participants and uncashed checks. Under DOL regulations, uncashed distribution checks of missing participants are still plan assets protected under ERISA, which can be a fiduciary risk for plan sponsors and recordkeepers alike if they are voluntarily reporting plan assets as unclaimed property. “The accumulation of these uncashed checks has created a dilemma for recordkeepers and plan sponsors who have that fiduciary duty,” she said.
The preferable solution is to follow any current regulations defined and accepted by the DOL, such as a safe harbor IRA rollover pursuant to Section 404(a) of ERISA. Employers have also used advanced tech platforms that have been successful in locating missing participants or beneficiaries. Such platforms are growing in popularity, and some searches exceed the DOL’s requirements, Petersen said.
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