DOL Guidance for Unclaimed Small Retirement Plan Payments Provides Relief, Requires Diligence

Earlier this year, the Department of Labor (DOL) issued Field Assistance Bulletin No. 2025-1, establishing a temporary non-enforcement policy that permits plan fiduciaries to escheat small retirement benefit payments – $1,000 or less – to qualifying state unclaimed property funds.  This provides a new option for certain ERISA-covered retirement benefits owed to missing plan participants or beneficiaries.

Pending additional guidance, the DOL will not pursue ERISA 404(a) violations against plan fiduciaries who comply with the conditions outlined in the temporary policy.

Previously, the DOL allowed retirement plans to issue checks directly to participants or transfer small-balance payments to individual retirement accounts (IRAs). Plan fiduciaries, however, often struggle with subsequent issues when a retirement plan participant’s check remains uncashed and becomes stale dated after six months. Finding IRA providers that will accept small balances has also proven cumbersome, especially in the case of a participant that is found to be deceased. When such providers are available, the IRA balances often decrease over time because fees outpace investment returns.

Required Conditions

The DOL’s temporary nonenforcement policy applies to balances of $1,000 or less, including uncashed checks, under the following conditions:

• The plan fiduciary determines that transferring the balance to a state unclaimed property fund is a prudent destination for the balance.
• The plan fiduciary has been unable to locate the participant or beneficiary, despite having implemented a program for locating missing participants that is consistent with the department’s recommended best practices for pension plans.
• The plan fiduciary selects the state unclaimed property fund offered by the state of the participant’s or beneficiary’s last-known address.
• The plan’s summary plan description explains that missing participants’ or beneficiaries’ retirement benefits may be transferred to an “eligible state fund” and provides plan contact information for additional information.
• The state unclaimed property fund qualifies as an “eligible state fund,” based on nine qualifying conditions defined in the DOL guidance.

An “eligible state fund” is a state unclaimed property fund that meets all of these conditions:

• Acts as the custodian of the funds and allows claims to be made and paid in perpetuity.
• Does not impose fees or other charges.
• Maintains a searchable website that displays the name of the missing participant or beneficiary in the search results and enables electronic claims submission.
• Offers the public the ability to inquire about unclaimed property by physical mail, email and telephone.
• Participates in the National Association of Unclaimed Property Administrators’ MissingMoney.com website or a similar database.
• Streamlines the claims process.
• Conducts annual searches for updated addresses of missing participants and beneficiaries for amounts of $50 or more. If an updated address is found, the state fund provides written notice to the owner that it is holding the money.
• Permits a plan whose fiduciary has transferred the unclaimed property to the state to directly pay reappearing participants or other payees and obtains reimbursement from the state.
• Participates in the states’ Unclaimed Property Clearing House.

A plan fiduciary may rely on a state treasurer’s assurance that the “eligible state fund’ meets each of these requirements.

When considering whether to apply the DOL’s temporary relief policy, retirement plan fiduciaries should weigh the benefits against the potential risk.

Benefits

The DOL’s guidance requires several conditions to be met that help ensure missing plan participants and beneficiaries can easily claim their funds. Because the state serves as a custodian, claims can be made in perpetuity, regardless of when the plan fiduciary transferred it to the state. Each state maintains a searchable website that provides the public with the names of missing participants or beneficiaries and the corresponding plan name, allowing searchers to readily identify their property. Potential claimants can contact the state fund by mail, email or phone with questions.

At least annually, eligible state funds search for updated addresses of missing plan participants and beneficiaries for balances greater than $50. If a new address is located, the fund sends the property owner a written notice that the state is holding the funds, which may be claimed.

If a previously missing plan participant or beneficiary files a claim with the retirement plan after its fiduciary has transferred the funds to the state, the plan may pay the claim and obtain reimbursement from the state.

Most importantly, verified claimants receive 100% of their funds. Because the process applies no charges or fees, states pay valid claimants the full amount that was transferred by the plan fiduciary.

Potential Risk

Although the DOL guidance offers several advantages for plan fiduciaries and their participants, taking advantage of this temporary relief comes with some risks. Perhaps most concerning is if the sponsoring organization or company has never reported unclaimed property in the past or is delinquent in doing so, transferring funds to a state’s treasury under the new guidance could trigger an audit for the entire organization.

Complying with all of the guidance’s requirements is essential. Because the plan’s summary description must explain that payments to missing participants and beneficiaries may be transferred to eligible state funds, all eligible states must be listed. In addition, a plan contact’s name, address and phone number must be included for anyone seeking information about which state funds are holding the retirement benefit payments.

Plan fiduciaries need to coordinate with every reporting jurisdiction represented by the funds that are transferred to the state, rather than a single provider for IRAs or other approved accounts.

Navigating the complex requirements and compliance changes for unclaimed retirement benefits continues to challenge plan fiduciaries. So while the new FAB2025-01 may seem to provide additional options for small balances this temporary non-enforcement policy adds yet another potential complication.

MarketSphere can help fiduciaries understand the choices when dealing with small balances and alleviate the burdens facing the Plan, who is responsible for acting in the best interest of plan participants and beneficiaries. Learn about MarketSphere’s Retirement Reunification Services and contact our team to get started.