Plan Sponsor Received Mutual Fund Settlement Check Payable to 401k Plan

[waid10]

Plan Sponsor received a check from RBC, payable to the Plan, that was a settlement with the SEC over certain fees involved in a mutual fund.  The check says it is for the benefit of a participant that has long since departed from the employer.   Plan Sponsor has no address for the participant.  How should this be handled?

[ESOP Guy]

My guess is the strict answer will be try and find the person.

But as a practical matter are we talking $10s, $100s, $1000s+?  

The simple fact is most people are going to have a much different attitude about a $1,000 check vs a $10 check.   So if you don't mind letting us know the range we are talking about here.   The risks of getting it wrong between the two amounts seem to be very different.   For one thing would the cost of hiring a search firm exceed the amount for example?   But let's say it is in the $100s or $1000s+ I would think you would have to at least hire a search firm to look for them.   You can get a good search for <$20 it seems like. 

Also, to be clear it really is for just one person?  It was in some kind of self-directed investment and no one else was in that fund at the time? 

[waid10]

2 minutes ago, ESOP Guy said:

My guess is the strict answer will be try and find the person.

But as a practical matter are we talking $10s, $100s, $1000s+?  

The simple fact is most people are going to have a much different attitude about a $1,000 check vs a $10 check.   So if you don't mind letting us know the range we are talking about here.   The risks of getting it wrong between the two amounts seem to be very different.   For one thing would the cost of hiring a search firm exceed the amount for example?   But let's say it is in the $100s or $1000s+ I would think you would have to at least hire a search firm to look for them.   You can get a good search for <$20 it seems like. 

Also, to be clear it really is for just one person?  It was in some kind of self-directed investment and no one else was in that fund at the time? 

Thanks for the response.  The check is for just under $600.  

The check is made payable to the Plan, but is has a note on that says "FBO" and the name of the terminated participant that I mentioned.  I also questioned that this could be related to just one participant.  I have asked the Plan Sponsor to call RBS to see if they can get any additional information, but I am not holding out much hope on that.

[JonC]

There's DOL guidance on similar situations at https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2006-01. While I'd encourage you to read the entire guidance, the DOL seems willing to provide considerable flexibility with respect to how settlement proceeds are allocated as ongoing fund assets, summarized as follows: "While plan fiduciaries generally have flexibility in designing a methodology for allocating settlement fund proceeds among the plan's participants and beneficiaries, plan fiduciaries must ensure that the selected methodology does not otherwise violate the prudence and "solely in the interest" requirements of section 404(a)."

My guess is that the individual named in the "FBO" was a prior trustee or signatory for the plan--based both on the scale of the settlement amount and on the fact that only one check came in for the plan. But that's just a guess. Getting more information would help considerably!