Dealing with Uncashed Distribution Checks and Missing Participants

View This Newsletter: Dealing with Uncashed Distribution Checks and Missing Participants


It is estimated that uncashed checks account for billions of dollars, representing a fortune of uncollected funds belonging to plan participants or beneficiaries that they are not able to use and also represent serious issues for fiduciaries.

  • Uncashed Checks are Plan Assets
    • Plan sponsors retain fiduciary responsibility of the funds represented by uncashed checks.
    • The failure to take steps to locate and pay terminated participants can be considered a breach of fiduciary duty.
  • What Should Plan Sponsors Do?
    • Unfortunately, there is no clear guidance from the IRS or DOL regarding how to administer these checks.
    • Until guidance is issued by regulators, plan sponsors should take a best-practices approach.
  • Searching for Missing Participants
    • Plan fiduciaries must make a reasonable effort to locate missing participants and should keep accurate records of all efforts to locate them.
  • Required Steps
    • Send a notice by certified mail
    • Check related plan and employer records
    • Check with the participant’s plan beneficiary
    • Use free internet search tools
  • Reasonable Additional Steps
    • The plan fiduciary needs to consider whether it would be prudent to use other methods, such as fee-based internet search services.
    • The plan fiduciary will need to consider the size of the participant’s account balance in relation to the fees that would be incurred when deciding whether to use any of these alternatives.
  • What are the Options if the Participant Cannot be Found?
    • The best practice solutions available to plan sponsors depend on whether a plan is ongoing or terminating and the plan document provisions.
  • Return Funds to the Plan
    • If the account balance exceeds $5,000, return the funds to the plan and reestablish the participant’s account so that new earnings will accumulate.
  • Forfeit the Account Balance
    • Many plans include provisions that allow account balances under $1,000 to be forfeited. If the participant comes forward in the future, the plan must make him or her whole by reinstating the forfeited amount and paying the distribution.
    • The plan should have rules and procedures addressing the time frames and circumstances in which assets may be forfeited if accounts remain unclaimed and the procedures for reinstatement if later claimed.
    • Forfeiting funds without making reasonable efforts to locate missing participants raises compliance issues.
  • Roll Over Assets to an IRA
    • The DOL has provided guidance on using automatic rollovers to roll assets of less than $5,000 into an IRA in the name of the missing or unresponsive participant or his or her beneficiary.
    • By utilizing automatic rollover IRAs, plan sponsors will be deemed to have met their fiduciary responsibilities, freeing them from the ongoing fiduciary and administrative burden of uncashed checks/unclaimed plan assets.
    • Regulations provide a safe harbor method to satisfy fiduciary duties in selecting the IRA provider and the default investment.
  • Withholding 100% of the Participant’s Account Balance is not an Option
    • In the past a popular practice was to simply pay the entire amount of the distribution to the IRS as income tax withholding.
    • The IRS issued guidance indicating such practice was not acceptable.
  • Preventive Action Tips
    • Periodically review and cancel uncashed checks.
    • Include reminders on all plan communications to participants to update their contact information.
    • Require beneficiary contact information.
    • Request a personal email address and/or cell phone number during the exit process.
    • If the plan document calls for mandatory cash outs and/or rollovers, do so promptly.
    • For balances under $200, pay out the participant ASAP after termination.
  • Conclusion
    • Uncashed checks remain plan assets and fiduciaries remain responsible for appropriately managing the funds and making sure missing participants receive their money.
    • It is important to have written procedures in place.
    • In the case of uncashed checks and missing participants, there are many steps a plan sponsor can take to keep these potentially bothersome situations from becoming big headaches.


Pinnacle Plan Design is a third-party administrator (TPA) for employer-sponsored qualified retirement plans. We specialize in retirement plan design, administration and actuarial consulting for 401(k)/profit-sharing plans, defined benefit plans, cash balance plans, and 403(b) plans. Pinnacle Plan Design proudly serves businesses nationwide.
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