State Unclaimed Property Programs May Help Find Missing Participants

The Advisory Council on Employee Welfare and Pension Benefit Plans has issued a report to Secretary of Labor Eugene Scalia on transferring amounts from uncashed checks from retirement plans to state unclaimed property programs.

In this lengthy report, titled “Voluntary Transfers of Uncashed Checks from ERISA Plans to State Unclaimed Property Programs,” the council found that state unclaimed property programs return property to people as often as 72% of the time. It recommends that the Department of Labor (DOL) issue guidance on these programs.

The council—known as the ERISA [Employee Retirement Income Security Act] Advisory Council—says it is up to individual plans to decide if they want to engage with state programs. The council also notes that, unlike other countries, the U.S. does not have a clearinghouse or registry of missing participants.

In 2013, the council recommended that the DOL develop best practices for finding missing participants, and, in 2014, the DOL issued a Field Assistance Bulletin stating that, “consistent with their obligations of prudence and loyalty, plan fiduciaries must make reasonable efforts to locate missing participants or beneficiaries.”

Those recommendations included using certified mail, checking plan and employer records, running free electronic search tools and reaching out to plan beneficiaries. The DOL also said employers could use internet search tools, commercial locator services, credit reporting agencies, information brokers and/or investigation databases.

If plan sponsors are unable to locate the missing participants, they must transfer the benefits to an individual retirement account (IRA), taxable account or state unclaimed property program.

The council notes that, according to the U.S. Bureau of Labor Statistics (BLS), the median number of years that wage and salary workers had been with their employer in January 2018 was 4.2 years and that older Baby Boomers, those born between 1957 and 1964, held an average of 12.3 jobs between the ages of 18 and 52. As a consequence of holding so many jobs and, potentially, retirement accounts at various employers, workers can lose contact with those plans, the council says.

According to the SPARK [Society of Professional Asset Managers and Recordkeepers] Institute, 78% of uncashed checks are for less than $100, 98% are for less than $1,000, and only 0.2% are for an amount greater than $20,000. SPARK also says that, in 2017, 4.5% of retirement distribution checks, or roughly 225,000 checks, were uncashed. The council estimates that this amounts to more than $100 million a year, which could “make a meaningful difference in the financial security for many Americans.”

The council notes that many plans that cannot find a participant or beneficiary consider the sums forfeited and use them for the benefit of the plan, typically to pay plan expenses or reduce employer contributions. The IRS permits this but requires employers to repay the money to participants should they eventually be found. According to the American Benefits Council, 49% of plans use this method. The others used involuntary rollovers.

The council notes that virtually all 50 states have an unclaimed property program. These state unclaimed property programs maintain searchable websites, and there is also a national website, missingmoney.com, in which 40 states and three territories participate.

These state programs have professional staff members who search for owners using informational databases, news media and social media. They also set up booths at state fairs, sporting events and other public venues. They also try to find people through driver’s license bureaus and state income tax records.

According to representatives from the National Association of Unclaimed Property Administrators (NAUPA), states have a return rate of 72% for in-state property where a Social Security number is provided and where the value of the property is more than $100.

The council says that “state unclaimed property programs have a number of features that may increase the likelihood that missing participants will be reunited with their lost retirement savings. … The council is keenly aware of the administrative complexities associated with state unclaimed property programs. However, the council has kept in mind that the issue at hand is not a mandate for plans to transfer unclaimed property to the states but, rather, an option that a plan administrator may voluntarily choose to utilize.”

In conclusion, the council recommends that the DOL issue guidance that plans may use state unclaimed property programs. Earlier, the DOL had said that this was not a “preferred” option. The council is asking the DOL to reconsider this, as it believes these programs can be successful.