Takeaways
- On January 14, 2025, the DOL issued Field Assistance Bulletin (FAB) 2025-01, providing sponsors and administrators of ongoing defined contribution plans with a new option for missing participant balances of $1,000 or less: transfer to the state unclaimed property fund associated with the participant’s last known address.
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BACKGROUND
Historically, when terminating defined contribution plans, the DOL specified IRAs as the preferred destination for missing participant account balances. However, the DOL also noted that, in seemingly narrow circumstances, transfer to a state unclaimed property fund may also be appropriate. See FAB 2014-01. Before making a distribution to a state unclaimed property fund, the plan fiduciary was required to prudently conclude that this distribution was appropriate despite the adverse tax consequences — income tax withholding and potential early distribution penalties — that would apply in lieu of tax-deferred rollover to an IRA. In later guidance, the DOL expressed concerns over IRA fees that outpaced investment returns. It noted that there were a number of features of state unclaimed property funds that might increase the likelihood that missing participants would actually be reunited with their retirement savings — noting that state unclaimed property funds do not deduct fees from amounts returned to claimants.
TEMPORARY ENFORCEMENT POLICY
Citing the underlying purpose of state unclaimed property funds — reuniting individuals with their lost assets — and noting data supporting that state unclaimed property funds have collectively returned billions of dollars in unclaimed property to rightful owners — FAB 2025-01 announced DOL’s temporary enforcement policy, applicable until formal guidance is issued: The DOL will not take action to enforce breach of fiduciary duty claims where an unclaimed account of $1,000 or less is transferred to a state unclaimed property fund. Naturally, there are many requirements and conditions, including:
- In calculating whether the benefit is $1,000 or less, the amount of outstanding plan loans are disregarded and rollover contributions are included;
- The plan fiduciary must conclude that the state unclaimed property fund is a prudent destination;
- The plan fiduciary must have implemented and exhausted a prudent program to find missing participants and
- The summary plan description must explain that missing participants may have their account balances transferred to a state unclaimed property fund and identify a plan contact for further information.
In addition, the state unclaimed property fund must be an “eligible state fund,” meaning, among other things, that the fund:
- Allows claims for transferred benefits to be made and paid in perpetuity;
- Does not impose fees or other charges;
- Has a free searchable website that includes the name of the plan in its search results and allows electronic claims;
- Participates in an unclaimed property database that the National Association of Treasurers has approved;
- Conducts annual searches for updated addresses of missing participants with accounts of $50 more and, if a new address is found, provides written notice that the money is being held and
- In the event a missing participant reappears and is paid directly by the plan, reimburses the plan fiduciary.
The plan fiduciary may also rely on the state unclaimed property fund’s representation that it satisfies all requirements of an “eligible state fund.”
CONCLUSION
Plan fiduciaries will likely welcome this temporary enforcement policy, but it does come with limitations — applying only to account balances of $1,000 or less — and with conditions, including SPD amendment.