The Best Solution for Uncashed Checks

August 26, 2014 ( - Uncashed checks are a real and growing problem faced by retirement plan sponsors. Anecdotally, the industry believes this issue to be in the neighborhood of billions of dollars.

Uncashed checks can also cause a problem for plan recordkeepers or other service providers if a plan is audited, as the rules under the Employee Retirement Income Security Act (ERISA) call for plan sponsors to do their best to make sure participants receive these funds. Failure to do so can result in hefty fines, and even lawsuits. Additionally, uncashed checks can raise issues with the Internal Revenue Service (IRS) and other agencies regarding taxes, escheatment and unclaimed property.  However, there is an effective solution: automatic rollover IRAs.

Causes of Uncashed Checks

Most uncashed checks are the result of plan participants not realizing they have money owed to them. This is compounded by difficulties encountered by plan sponsors and plan service providers in maintaining records and communications with participants, many of whom change jobs frequently.

According to the Bureau of Labor Statistics’ Employee Tenure Summary, the median number of years wage and salary workers stayed with an employer was only 4.6 years as of January 2012. This number was even lower for younger workers, as employees ages 25 to 34 stayed with an employer for a median number of 3.2 years.

Many employers automatically enroll their employees in retirement benefit programs which also contributes to the incidence of uncashed checks. This means even greater numbers of workers may have retirement benefits but not be aware of their rights or responsibilities. Even if a worker is aware of these benefits, they may not be aware that a distribution check has been sent because the IRS does not require that a worker request a distribution before checks can be mailed for balances less than $1,000.

Problems Associated with Uncashed Checks

The most important issue is uncashed checks are classified as plan assets until claimed by plan participants; plan sponsors retain fiduciary liability for these plan assets. This is vital for two reasons:  First, it makes it clear that uncashed checks are considered plan assets under ERISA and by the Department of Labor (DOL). Second, it shows that plan sponsors are prohibited from handling these assets in such a way as to benefit themselves.

Yet, while unclaimed plan assets cannot be used to benefit plan sponsors, they often increase plan costs. The administration of these assets costs money, and as long as they remain unclaimed, the plans or plan sponsors are responsible for maintaining the assets and paying the administrative expenses.  Additionally, the DOL stated escheatment should not be an option for plan sponsors except as a possible solution if individual retirement accounts (IRAs) are not chosen by a plan sponsor for non-responsive participants in plans that are to be terminated.

Further, the IRS has specific procedures in place for plan sponsors regarding reporting and withholding. In the case of uncashed checks, these rules can become complicated, especially in cases where funds are restored to an employee’s retirement account, which requires withholding also to be restored. Also, if distribution amounts are returned to a participant’s account, changes will have to be made to the relevant tax forms used to document the original distributions.

The IRS asks that plan sponsors issue an updated Form 1099-R as quickly as possible if corrections need to be made regarding distribution and withholding on the original form. The DOL has also made it clear that plan sponsors have a responsibility to enact provisions in plan documents and service agreements that provide guidance about how to handle uncashed checks, as well as specific procedures and timeframes intended to return funds back to a plan as quickly as possible. Plan sponsors that fail to resolve the issues of uncashed checks can also find themselves being fined by the DOL, or facing lawsuits from plan participants who are unhappy with how their retirement benefits were handled.

Automatic Rollover IRAs Are the Best Solution

According to the DOL, if an uncashed check is unclaimed by a plan participant, the funds remain plan assets. However, when applicable, these funds can be rolled into an IRA in the name of the participant or their beneficiary.

The DOL says plan sponsors “will be deemed to have satisfied [their] fiduciary responsibilities in connection with automatic rollovers of certain mandatory distributions to individual retirement plans” if the requirements set forth in the rules are satisfied. 

This means plan sponsors that consider participants to be missing or non-responsive can take advantage of automatic rollover IRAs if a participant’s balance is $5,000 or less and they meet the DOL’s safe harbor requirements including:

  • The rollover amount cannot be more than $5,000, unless from a terminating defined contribution plan;
  • The account balance must be rolled over to an entity authorized by the IRS to act as an IRA custodian, such as a trust company, bank, credit union or registered mutual fund;
  • The rolled over money must be invested in a product that meets requirements relating to preserving principal and providing a reasonable rate of return and liquidity;
  • The fees and expenses for the IRA cannot be more than the fees and expenses the IRA provider charges for similar, non-automatic rollover IRAs; and
  • The participant must have the power to enforce the terms of the IRA.


Pursuant to authorized rollover procedures, the IRA custodians will open an IRA in the name of the plan participant and invest the funds in investments that are intended to minimize risk, preserve the principal, maintain liquidity and give a reasonable rate of return.  

By utilizing automatic rollover IRAs, plan sponsors will have been deemed to have met their fiduciary responsibilities, freeing them from the ongoing fiduciary and administrative burden of uncashed checks/unclaimed plan assets.


Terry Dunne, senior vice president, managing director of Rollover Solutions Group, Millennium Trust Company 


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.
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