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On January 14, 2024, the Department of Labor published a field assistance bulletin (FAB 2025-01) announcing a “non-enforcement” policy with respect to the transfer of small retirement benefits ($1,000 or less) from an ongoing ERISA retirement plan to a state unclaimed property fund, where the plan/plan fiduciaries and the state fund meet certain conditions.
DOL also announced its intent, as part of its (SECURE 2.0 authorized) project to establish a Retirement Savings Lost and Found “to consider more formal guidance related to voluntary transfer of retirement benefit payments from ongoing pension benefit plans to state unclaimed property funds.”
In this article we briefly review the conditions that apply to these transfers under the FAB and conclude with some observations about the utility of this guidance to plan sponsors.
Background
In 2021, DOL published a set of Best Practices for Pension Plans for what might be called missing participant “hygiene,” to reduce the number of participants who do go missing, identify the participants that have gone missing, and search for those missing participants.
The issue of “missing participants” generally becomes acute when you have to send a benefit to a participant, and you can’t find her – e.g., when you send the distribution election letter to her last known address, and it is returned.
With respect to amounts over $1,000, there are a set of rules generally requiring distribution to an IRA. For amounts of $1,000 or less, what do you do? Here’s DOL’s recitation of (their view of) the applicable law in this case:
ERISA requires plan fiduciaries to exercise prudent and loyal judgment with respect to handling retirement benefit payments. In the past, the Department has identified “individual retirement plans” (IRAs) as the preferred destination for a distribution from a retirement account or benefit owed to a missing participant or beneficiary from a terminated defined contribution plan. However, the Department also recognized that an IRA may not always be available for a distribution and has provided fiduciaries of terminating defined contribution plans with the option of transferring distributions to a state unclaimed property fund or an interest-bearing federally insured bank account under certain circumstances. Before making such a decision, the fiduciary must prudently conclude that the distribution is appropriate despite the potential considerable adverse tax consequences to the participant or beneficiary.
FAB 2025-01
Just-published FAB 2025-01 provides an alternative to transfer to an IRA – a set of rules for transfer of these small benefits ($1,000 or less) to a state unclaimed property fund. If a plan/plan fiduciary follows these rules, then DOL “will not pursue violations under [ERISA’s general fiduciary rule] from an ongoing pension benefit plan to a state unclaimed property fund, provided.”
Conditions applicable to the plan/plan sponsors
To take advantage of the FAB (that is, to make these transfers of small benefits to a state fund):
The plan fiduciary must determine that transfer to a state unclaimed property fund is prudent.
The plan fiduciary must have “implemented a prudent program to find missing participants consistent with [DOL’s Best Practices], and nevertheless has been unable to locate the participant or beneficiary.”
The transfer is to the state fund for the participant’s last known address.
The plan’s SPD explains the transfer program/the possibility of this sort of transfer and provides a plan contact for further information.
The state fund qualifies as an “eligible state fund.”
Eligible state fund
To be an eligible state fund, the fund must meet the nine criteria detailed below. But as a practical matter, for sponsors/sponsor fiduciaries, the key feature of DOL’s guidance is that “[a]bsent actual knowledge to the contrary, the plan fiduciary may rely on a representation by a State Treasurer that the state operates an unclaimed property fund that meets all of [the nine] conditions.”
Conditions applicable to an eligible state fund
To be an eligible state fund, the fund must:
Act as the custodian of the funds of affected participants, their beneficiaries, and their heirs and allow for claims for unclaimed property in perpetuity
Not charge any fees against (or otherwise reduce) the transferred amount.
Maintain at no charge a searchable website showing participant and plan identification information and that “permits an electronic claims process.”
Publicly provide the ability to make inquiries by physical mail, electronic mail and telephone.
Participate in the National Association of Unclaimed Property Administrators MissingMoney.com website or similar website “operated under the auspices of the National Association of State Treasurers, Inc.”
Provide “streamlined processing” for small claims.
Diligently search, annually, for an updated address for amounts over $50, and, when an updated address is obtained, notify the owner.
Permit a plan to “pre-pay” a “re-appearing” participant directly and then get reimbursement from the state fund.
Participate in the States’ Unclaimed Property Clearing House of the National Association of State Treasurers, Inc.
Takeaways for sponsors
Sponsors typically interact with DOL on these issues in the context of an audit. Obviously, demonstration that a sponsor has taken DOL’s suggestions, e.g., in this FAB and its description of best practices, will help in the audit process. But sponsors will want to review those Best Practices (discussed in our article linked above) – some sponsors may find some of those Best Practices impractical or may have developed more effective ways of tracking participants.
The FAB does provide sponsors with a (generally more convenient) way of dealing with small benefits for missing participants. But it does (in effect) turn DOL’s Best Practices “guidance,” in this instance, into a requirement: as noted above, to take advantage of this non-enforcement policy the sponsor/sponsor fiduciary must implement a missing participant program “consistent with [DOL’s] Best Practices for Pension Plans.”
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We will continue to follow this issue.