In an increasingly mobile world, where employees are more and more likely to change jobs and addresses frequently, retirement plans must be prepared to carefully search for and locate missing participants (and their beneficiaries) in order to pay promised benefits and satisfy the requirements imposed by the U.S. Department of Labor (DOL). Because even missing participants remain entitled to their benefits under the Employee Retirement Income Security Act of 1974 (ERISA), plan fiduciaries are obligated to take necessary action to ensure that such participants are paid their full benefits when due.
In early 2021, the DOL provided updated guidance and best practices for retirement plans to utilize in locating missing participants. Under the guidance, this process should begin with complete, current recordkeeping and continue with thorough policies and procedures for when a benefit payment is returned marked "return to sender" or "wrong address" or is otherwise undeliverable.
The DOL suggests periodically confirming or updating participant contact information, attaching contact information change requests to other plan communications and otherwise providing regular opportunities for participants to confirm correct contact information for themselves and their beneficiaries. If a benefit payment or other plan communication is returned as undeliverable, the DOL recommends that a plan perform a diligent search for the missing participant or beneficiary, taking steps including checking related plan or employer records for next of kin or emergency contact information, using free online search engines or commercial locator services and attempting contact through any other available means (including email, telephone and social media). Plans should document their search procedures and all actions taken to locate the missing participant or beneficiary.
But what if these efforts to locate and contact the missing participant fail?
The DOL has historically approved of two methods for ongoing retirement plans to address uncashed checks and benefits owed to missing participants: (1) transfer to an individual retirement account or annuity (IRA) selected by the plan sponsor pursuant to the small‑sum rollover rules (the small sum rollover rules permit rollovers of retirement account balances to IRAs where the account balance is $7,000, previously $5,000, or less) if certain requirements are met; or (2) temporary forfeiture back to the plan to be held with a right of restoration should the participant or their beneficiary reappear.
The ERISA Advisory Council consists of industry leaders and representatives of both employee organizations and employers, and provides non-binding recommendations for the DOL to consider based on expert testimony on selected issues important to the administration of ERISA. In 2019, the ERISA Advisory Council recommended that the DOL issue guidance on voluntary transfers of amounts attributable to missing participants' uncashed benefit checks to state unclaimed property funds. Previously, this approach had been permitted—though still unfavored—by the DOL only for terminating plans unable to distribute benefits owed to missing participants by any other means. Until recently, no such permission had been granted to ongoing retirement plans to any degree.
In response to the Advisory Council's report, comments from stakeholders and other regulatory developments, the DOL established a temporary enforcement policy, described in Field Assistance Bulletin No. 2025‑01 (FAB 2025‑01), in January 2025. While the DOL indicates its growing approval of voluntary transfers to state unclaimed property funds in the preamble to FAB 2025-01, specifically noting that IRAs charge considerable fees that decrease account balances over time while state unclaimed property funds charge no fees and return lost assets to owners with widespread success, the relief offered by FAB 2025‑01 is significantly limited.
Principally, while the DOL has expressed its intent to issue formal, binding guidance on this topic in the future, FAB 2025‑01 is merely a temporary enforcement policy with a limited scope. It serves only as guidance for DOL agents and investigators, rather than as binding regulation for plans and plan fiduciaries. Additionally, the requirements of the policy itself are strict and still impose substantial compliance obligations on retirement plans.
Under the policy, the DOL and its agents will not pursue violations of ERISA in connection with an ongoing retirement plan's voluntary transfer of benefit payments owed to missing participants or their beneficiaries (together, missing payees) to a state unclaimed property fund, as long as (1) the present value, disregarding any outstanding loans, of the missing payee's nonforfeitable accrued benefit is $1,000 or less, including rollover contributions; and (2) the plan fiduciary determines that the following conditions are satisfied:
- The state unclaimed property fund is a prudent destination for the payments;
- The plan has a prudent program to find missing participants consistent with the DOL's best practices, and nevertheless has been unable to locate the missing payee;
- The state unclaimed property fund is offered by the state of the last known address of the missing payee;
- The plan's summary plan description (SPD) explains that payments to missing payees may be transferred to an eligible state fund and identifies a plan contact for further information on eligible state fund transfers; and
- The state unclaimed property fund qualifies as an "eligible state fund."
FAB 2025‑01 imposes nine specific criteria for a state unclaimed property fund to qualify as an eligible state fund. An eligible state fund must, among other requirements, act as a custodian for the unclaimed funds in perpetuity, charge no fees, maintain a searchable website with an electronic claims process, streamline small claims (i.e., of $1,000 or less) and allow public inquiries by mail, email or phone. A plan is permitted to rely on a representation by a state treasurer that a state unclaimed property fund meets the nine necessary conditions to qualify as an eligible state fund. Significantly, the final requirement is that any eligible state fund must participate "in the States' Unclaimed Property Clearing House, as operated by the National Association of State Treasurers, Inc. (NAST)."
However, this States' Unclaimed Property Clearing House does not appear to have been officially established; as of this writing, the NAST website still includes a request for proposal from contractors interested in "establishing a clearinghouse for uncashed ERISA plan checks to distribute to state unclaimed property programs." As such, it is functionally impossible for any state unclaimed property fund to be deemed an "eligible state fund" as defined in FAB 2025-01.
Even if all criteria were met by an applicable state fund, a plan would still need to update its SPDs to include the necessary information on state fund transfers, and such transfers could only be made for benefits of $1,000 or less. All of that comes after a diligent search for the missing payee following a prudent program that comports with DOL guidance. For ongoing retirement plans that have long sought DOL approval of transfers of benefits owed to missing participants to state unclaimed property funds, FAB 2025-01 may seem inadequate and unsatisfactory.
However, even with further guidance from the DOL addressing the nonexistent clearinghouse and/or explicitly affirming voluntary transfers of benefit payments to state unclaimed property funds, this process will likely always require considerable effort from plan sponsors to ensure a transfer is reasonable and prudent. In short, while the relief offered by FAB 2025‑01 is limited, it is a limited step in the right direction.
As always, plan sponsors should continue to follow best practices for locating missing participants and beneficiaries, documenting each search activity. When attempting to dispose of unclaimed benefits, plans must carefully evaluate the advantages and compliance risks of each potential approach. If considering a transfer to a state unclaimed property fund, plan sponsors should maximize adherence to the standards of FAB 2025-01 by ensuring all eight of the attainable criteria are satisfied by the fund and that all other DOL standards and requirements are fulfilled.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
