Faced with increased scrutiny from the Department of Labor about lackluster efforts to find missing retirement plan participants, employers are asking for permission to send uncashed pension checks—money that belongs to former workers–to state unclaimed property funds.
“It’s unbelievable, but everybody has that story of a beneficiary who is sitting on a check they refuse to cash with no discernable reason,” says Aliya Robinson, senior vice president of retirement and compensation policy for ERIC, an industry group representing large employers. “Employers want to make sure they’re doing what they need to do, but there’s no guidance.”
Employers can’t just throw up their hands when they lose track of former employees. Employers are obligated to pay out any benefits due: It’s their fiduciary duty under ERISA, the law that governs traditional defined benefit plans and 401(k) retirement plans. This week in meetings at the U.S. Department of Labor, the advisory council on employee welfare and pension benefit plans, considered the topic in hearings: Permissive Transfers of Uncashed Checks from ERISA Plans to State Unclaimed Property Funds.
One anecdote at the hearing involved a $36,000 check. Such a big uncashed check isn’t a one-time thing. In one case, an employer sent out a $100,000 lump sum check when an employee retired, and it waited and waited while it went cashed. Eventually, the employer found out that the former employee had the check posted on a bulletin board at home with other miscellaneous letters, Robinson says (he eventually cashed it).
Typically, the amounts are much smaller, as little as a few dollars a month, and sometimes the workers aren’t easy to locate. Uncashed checks can be for annuities, required minimum distribution payouts, loan overpayments, and small account balances—if your account balance is $1,000 or less when you leave an employer, the employer can send you a check to close the account.
The industry group ERIC wants the DOL to say one way or the other: allow us to choose one state unclaimed property fund or a central repository or federal agency to transfer uncashed checks to. And then, absolve us of fiduciary liability.
Some employers are already transferring uncashed checks to states unclaimed property funds, based on a DOL bulletin that okays this for terminating 401(k) plans. In 2016, 17 states collectively received approximately 54,000 transfers of retirement savings worth about $35 million, according to this January 2019 Government Accountability report.
What can workers and retirees do to safeguard their retirement money? When you leave a job, check with HR if you have any vested retirement benefits. If you have a 401(k) balance, no matter how small, you can roll it over to a 401(k) at your new employer or roll it over into an Individual Retirement Account. By not cashing out, you’ll build a bigger nest egg, and you’re less likely to lose track of the account. If you choose to leave the money in your old 401(k), update your contact information if you move, and update your beneficiary information if you divorce or your spouse dies.
If you’re holding on to a check, “Please cash it,” begs Robinson. If it’s an annuity payment, it’s best to sign up for direct deposit into your checking or savings account.
If you think you or an aging relative might have an old retirement account they’ve forgotten about, contact their former employers. For terminated plans, you can find unclaimed defined benefit pension and 401(k) money in safe keeping at the PBGC here. For help finding a lost pension, check out these free pension counseling projects.