DOL Temporary “Non-Enforcement Policy” for Small-Balance Transfers to State Unclaimed Property Funds
On January 14, 2024, the Department of Labor (DOL) published a Field Assistance Bulletin (FAB) 2025-01 announcing a “non-enforcement” policy with respect to the transfer of small defined contribution (DC) plan balances ($1,000 or less) belonging to missing participants to a state unclaimed property fund.
Background
In 2021, the DOL published Field Assistance Bulletin 2021-01 and best practices guidance related to missing participants. Plan sponsors, on occasion, must deal with missing plan participants and beneficiaries, and what to do with their plan balances. Current DOL regulations provide a rollover to an IRA as a fiduciary safe harbor for distributions over $1,000 from terminated or abandoned DC plans for missing participants (and those who do not otherwise affirmatively elect distributions). Additionally, under FAB 2021-01, the DOL will not pursue ERISA violations against plan fiduciaries of terminating DC plans if they transfer the plan balance of a missing or nonresponsive participant or beneficiary to the Pension Benefit Guaranty Corporation’s (PBGC’s) Defined Contribution Missing Participants Program rather than to an IRA, certain bank accounts, or to a state unclaimed property fund. For amounts of $1,000 or less, FAB 2025-01 addresses plan transfers to a state unclaimed property fund.
While the DOL has identified IRAs as the preferred destination for a distribution owed to a missing participant or beneficiary from a terminated DC plan, an acceptable alternative would be transferring a distribution to a state unclaimed property fund or an interest-bearing federally insured bank account under certain circumstances. Before making such a transfer is prudent and in the best interest of the plan participant or beneficiary.
FAB 2025-01
For transfers of small benefits of $1,000 or less to a state unclaimed property fund, the DOL will not pursue violations under ERISA provided a plan sponsor follows the guidelines of FAB 2025-01.
To take advantage of FAB 2025-01, the plan fiduciary must
Determine that the transfer to a state unclaimed property fund is prudent.
Have implemented a prudent program to find missing participants consistent with DOL’s Best Practices.
Transfer the missing individual’s balance to the state fund based on their last known address.
Ensure the plan’s SPD explains the transfer program and the possibility of this sort of transfer, and provides a plan contact for further information.
Determine whether 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. A plan fiduciary may rely on a representation by a State Treasurer that the state operates an unclaimed property fund that meets all of the following conditions.
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 a 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 reappearing 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
From a plan governance perspective, plan sponsors should have a documented policy in place they follow that addresses missing participants and their plan balances that aligns with the DOL’s best practices and FABs on the subject. Regarding FAB 2025-01, to take advantage of this non-enforcement policy, the plan sponsor (or acting fiduciary) must implement a missing participant program consistent with DOL’s Best Practices for Pension Plans.
Sources:
Department of Labor (n.d.). Field Assistance Bulletin No. 2021-01. https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2021-01
Department of Labor (n.d.). Missing Participants Best Practices for Pension Plans. https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance/best-practices-for-pension-plans