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DOL Nudging Plan Fiduciaries to Recoup Uncashed Checks

Government Affairs

The Department of Labor reportedly is engaging in a letter-writing campaign urging retirement plan fiduciaries to recoup amounts held by former recordkeepers or paying agents that may have been overlooked during the transition of a service provider relationship. 

According to an Aug. 13 blog post by Morgan Lewis Partner Matthew Hawes and Associate Emily Rickard, the DOL letters notify retirement plan fiduciaries of the existence of small uncashed check balances and direct plan fiduciaries to coordinate with former recordkeepers to restore these amounts to the participants and beneficiaries who failed to cash distribution checks.

The attorneys observe that this effort appears to be an offshoot of the recent wave of DOL investigations focused on vendors and recordkeepers that service plans governed by ERISA. The letters apparently quote the general ERISA requirement that plan fiduciaries have an obligation to ensure participants and beneficiaries receive all funds to which they are entitled. 

Hawes and Rickard note that while the letters do not impose a deadline, they ask that plan fiduciaries provide the DOL with copies of documentation:

  • confirming that uncashed check amounts, including lost earnings, have been returned; and 
  • that is sufficient to demonstrate that the funds have been appropriately allocated to the accounts of affected participants and beneficiaries. 

“While fiduciaries might conclude the cost of locating the participant or beneficiary to whom the uncashed amount is owed might exceed the value of the benefit itself, the DOL has made it clear that it expects fiduciaries to undertake efforts to return even small amounts to a plan’s trust,” according to Hawes and Rickard. 

They go on to observe that the new letter campaign appears to be the first time the DOL has focused on small benefit amounts that might have remained behind with a vendor following a transition to a new service provider. They note that although the recent DOL Terminated Vested Participant Program (TVPP) audits focused largely on missing participants, some also addressed uncashed checks with current recordkeepers. Still, DOL guidance on a fiduciary’s obligations with respect to uncashed checks continues to be limited. 

DOL Best Practices

In January, the DOL issued a list of best practices that fiduciaries should consider as steps their plan could take to help reduce missing participant issues and ensure that plan participants receive promised benefits when they reach retirement age. 

As part of that subregulatory guidance, the DOL observed from its experience and from plan sponsors that certain “red flags” are often warnings or indicators of a problem with missing or nonresponsive participants. One of those red flags, according to the DOL, is the “absence of sound policies and procedures for handling uncashed checks (as reflected for example, by the absence of an accounting journal or similar record of uncashed checks, a substantial number of stale uncashed distribution checks, or failure to reclaim stale uncashed check funds in distribution accounts).”

In relation to maintaining accurate census information for the plan’s participant population, the DOL suggested, among other things, to:

  • contact participants, both current and retired, and beneficiaries on a periodic basis to confirm or update their relevant contact information, including home and business addresses, telephone numbers (including cell), social media contact information, and next of kin/emergency contact information; 
  • include contact information change requests in plan communications along with a reminder to advise the plan of any changes in contact information; and 
  • flag undeliverable mail/email and uncashed checks for follow-up.

Considerations

In light of the DOL letters, the Morgan Lewis attorneys suggest that plan fiduciaries should consider reviewing recordkeeping and service provider agreements, as well as uncashed check procedures to confirm existing processes and practices for handling uncashed checks.

What’s more, plan fiduciaries might also consider proactively reaching out to former recordkeepers, trustees or paying agents about whether there are any undelivered assets—even small amounts—that remained behind after the transition.