New DOL Guidance Addresses Cash-Outs of Small Plan Accounts:

Given the mobile workforce in this country, during its plan audits the DOL is focusing more on “missing participants.” Those are former employees who still have a vested plan account but who have not provided the employer or its service providers with their current mailing address. The IRS and the  DOL have previously published guidance on steps that plans must take to try to locate those individuals. Many plans provide that if those individuals cannot be located after taking those IRS-required and DOL-required steps, and if their account is subject to the plan’s cashout provisions, their account is rolled into an IRA that is established for the purpose of holding those funds.

For terminating defined contribution plans, the DOL has stated that IRAs are the preferred destination for a distribution of missing participants’ accounts. The DOL has also stated, however, that because an IRA may not always be available for this purpose, fiduciaries of such plans can transfer those individuals’ distributions to a state unclaimed property fund or an interest-bearing federally-insured bank account under certain circumstances. Unlike IRAs, state unclaimed property funds do not deduct fees from amounts returned to claimants.

On January 14, via Field Assistance Bulletin No. 2025-01, the DOL announced that it will not pursue violations under ERISA in connection with the decision to transfer retirement benefit payments (including uncashed checks) owed to a missing participant from an ongoing plan to a state unclaimed property fund, provided the present value of the participant’s vested account equals $1,000 or less and the plan fiduciary complies with the following conditions:

• The fiduciaries must (1) determine that the transfer to a state unclaimed property fund is a prudent destination for the participant’s retirement benefit payments; (2) implement a prudent program to find missing participants under DOL guidance, but nevertheless have been unable to locate the participant; and (3) select the state unclaimed property fund offered by the state of the last known address of the participant or beneficiary.
• The plan’s summary plan description must explain that retirement benefit payments of missing participants may be transferred to an eligible state fund. That document must also identify the name, address, and phone number of a plan contact for further information concerning the eligible state funds to which the retirement benefit payments are transferred.
• The state unclaimed property fund must qualify as an “eligible state fund,” as defined in this DOL guidance. That involves several requirements. Absent actual knowledge to the contrary, however, plan fiduciaries can rely on a representation by a State Treasurer that the state operates an unclaimed property fund that meets all of those requirements.

For purposes of determining whether the present value of the participant’s vested account equals $1,000 or less, fiduciaries must disregard the amount of any outstanding plan loans but must include any rollover contributions.