What can an employer do with unclaimed money?

[Guest Adriana Hook]

What are the legal responsibilities of an employer in regards to "orphan" account. Example: ER has 401(k) plan. He has several employees who have left the company but have not made any effort to contact the company about their vested retirement money. The company has mailed a notification but many of the notifications have been returned because of a bad address (i.e. they have moved). What can the employer do? Does the ER have to keep these accounts and continue paying the per participant charge? Can he forfeit the money? What are his legal responsibilities and limitations? How long does he/she have to wait?

[rcline46]

This is addressed in the plan document, and the IRS regulations on missing participants. You gotta find 'em!

[Guest]

you might try apscreen.com

Have no idea about them, but they have been advertising from time to time on this web site. They will locate lost participants for a fee.

[Guest carolneill]

You can also go through Social Security Administration. There's probably information on how to do this on their website.

If participant can't be found, the money can go to the state and they will hold the funds and try to locate them. It's been a long time, but I believe it's called 'escheat.' This may vary from state to state.

[Guest MES]

Many (including the DOL) are of the opinion that state escheat laws are pre-empted by ERISA, and that the account balances should not be sent to the states per the escheat laws (although many do). This makes this situation even more difficult. I know that, depending on the amount, some institutions are distributing the funds with 100% withholding to the IRS, once these people cannot be found. But I definitely agree that you need to follow the terms of the plan document, which will probably require a diligent effort to find these people.

[AndyH]

Very sound comments by MES. Get a legal opinion before you give the money to a state.

[Guest Adriana Hook]

Amending the question: How much effort should the client put in? As far as using the government to track these people down, there is a minimum charge of $1200(since there are appx 160 people to track and we were told there would probably be additional charges. Not to mention, they can take as much time as they would like to send them (notifications) out. So, this brings me back to square one. How much "effort" does the government see as "reasonable"? And what other alternatives does the client have?

[AndyH]

Please clarify the situation. I think in the first post you said there were "several". Now we're talking about 160?

Second question: Is the plan terminating or remaining active? I think that makes a big difference. If it's active, I'm not sure you have a choice but to keep the accounts in existence, because if they resurface, you are obligated to restore the money.

And, as stated here a couple of times, you must follow the document.