The focus of the US Department of Labor (DOL) on missing participants and uncashed checks (discussed in our LawFlash DOL Guidance on Missing Participants Is No Longer Missing) recently began expanding into the area of uncashed checks (and the related assets) held by former recordkeepers. Taking the form of a letter-based initiative, the DOL is now urging retirement plan fiduciaries to recoup amounts held by former recordkeepers or paying agents that might have been overlooked during the transition of the service provider relationship to a new vendor.
These letters—seemingly an offshoot of the recent wave of DOL investigations focused on vendors and recordkeepers that service plans governed by ERISA—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.
DOL EXPECTATIONS WITH RESPECT TO UNCASHED CHECKS
The letters that we have seen quote the general ERISA requirement that plan fiduciaries have an obligation to ensure participants and beneficiaries receive all funds to which they are entitled. Without imposing a deadline, the letters ask that plan fiduciaries provide the DOL with copies of documentation (a) confirming that uncashed check amounts, including lost earnings, have been returned, and (b) 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.
The DOL’s 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. Although the recent DOL Terminated Vested Participant Program (TVPP) audits (which we discussed in our article for Law360, DOL’S ERISA Enforcement Activity on the Rise) focused largely on missing participants, some TVPP audits have also addressed uncashed checks with current recordkeepers. Despite this, guidance from the DOL on a fiduciary’s obligations with respect to uncashed checks continues to be scarce. Most recently, in its sub regulatory guidance Missing Participants – Best Practices for Pension Plans, the DOL observed simply that “[a]bsence of sound policies and procedures for handling uncashed checks” is considered a “red flag” of a missing participant problem, and stated that as a missing participant “best practice,” plan fiduciaries should flag “undeliverable mail/email and uncashed checks for follow up.”
CONSIDERATIONS FOR PLAN FIDUCIARIES
In light of this new wave of DOL letters, 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. Moreover, plan fiduciaries may consider proactively reaching out to former recordkeepers, trustees, or paying agents—particularly if there have been recent changes in any of these relationships—to find out if there are any undelivered assets—even small amounts—that remained behind after the transition.