ERISA Preemption

[benpat3]

Does ERISA preempt state unclaimed property laws regarding benefit plan expenses, such as professional fees and other miscellaneous bills, that are not benefits to participants, etc? These are non-benefit related checks. We know ERISA preempts state unclaimed property laws regarding benefit payments.

For example, if a benefit office pays the bills for the various plans and send checks to a lawyer or banker for services and those checks are never cashed, should the benefit office turn the money over to the state under the states unclaimed property laws. Does the answer change if the bill is for landscaping outside the benefit office and has absolutely no connection to benefits provided to participants?

[Kimberly S]

If it has nothing to do with the plan it cannot be paid from plan assets.

[Guest Sieve]

First, ERISA preempts state escheat law only to the extent that state escheat law mandates that amounts be escheated. The administrator can choose to escheat benefit payments in appropriate circumstances. Second, if the checks are drawn against a plan as plan administrative expenses--and I hope landscaping the benefit office is NOT drawn on a plan account--they could be escheated if the administrator so chooses, but escheat should not be required because the payment of administrative expenses is a statutory permissible action by an ERISA-covered plan.

[benpat3]

Yeah, sorry, the landscaping example was a poor choice. I was trying to give a situation that required a bill to be paid but that the bill was not a benefit or directly related to a benefit in order to see if that changed one's opinion. I guess what may be a better example would be a benefit office's water bill or electric bill; I know these kinds of expenses would hardly ever be unclaimed but that kind of expense. An expense that is an indirect expense of providing benefits but that is paid with plan assets. Would that change your response?

[IRA]

I would never consider this to be an escheat issue. If I pay a bill and the payee doesn't want my money, I just keep the money and maintain an account payable on the books. I wouldn't send the money to the state. Is there something else going on here?

[Moe Howard]

IRA is correct.... the plan should keep the money.

Who ever heard of a business voiding old outstanding checks and giving those $funds to the state?

[Guest Sieve]

Except if the plan is terminating and distributing all assets, in which case escheating the uncashed check amount might make some sense.

[Guest medbenies]

If we presume that ERISA preempts escheat, the question remains, is the plan required to honor an old check if presented at any piont in time, assuming the plan still exists? Specifically, if a payment is issued to a medical service provider but remains uncashed at one year, is the plan 'allowed' to legally void the check and not honor its payment in the future? Or, is the plan required to honor ALL payments regardless of their age and regardless of whether it was paid to a plan member and that the obligation is still valid and not settled? Otherwise, it would seem that the ERISA plan is preventing escheatment in order to take advantage and receive a benefit that is at the expense other payees.

Whichever opinion you site, can you support it with any caselaw?

Thank you!

[J Simmons]

If we presume that ERISA preempts escheat, the question remains, is the plan required to honor an old check if presented at any piont in time, assuming the plan still exists? Specifically, if a payment is issued to a medical service provider but remains uncashed at one year, is the plan 'allowed' to legally void the check and not honor its payment in the future?

The plan is obligated to pay the benefits promised by the plan. The plan may specify practical limits on the presentation and perfection of claims, and I suppose might even be able to specify when an uncashed check issued by the plan in payment of benefits would go stale. If so, that should be noted on the check itself (such as "Not valid after 180 days"). However, under 3-309 of the Uniform Commercial Code, the issuance of the check suspends the plan's obligation for the promised benefit. If the check is dishonored, the obligation is no longer suspended, and the employee/beneficiary (or medical provider) might be able then to bring legal action against the plan to enforce the underlying benefits obligation if not simply the payment obligation on the check itself (i.e., there was no legal basis for dishonoring the check).

Or, is the plan required to honor ALL payments regardless of their age and regardless of whether it was paid to a plan member and that the obligation is still valid and not settled? Otherwise, it would seem that the ERISA plan is preventing escheatment in order to take advantage and receive a benefit that is at the expense other payees.

If in the meantime that the health service provider has been sitting on the old check issued to that provider the plan has paid the plan member, then the plan could put a stop payment on the old check to the provider. To prevail against the plan, the provider would have to show that it relied on promises of payment directly from the plan before providing services. Otherwise, the provider would have to look to its patient or responsible party (parent or signor) for payment.

[IRA]

For non-benefit obligations, plans can rely on state-law statutes of limitations - though they can't set their own.

[Guest Mr. Kite]

It's been a while since I looked at this issue, but here are some thoughts:

Generally if a check is not cashed for a period that renders the check nonnegotiable, the underlying funds are not escheated because the funds continue to be the property of the accountholder -- the check payee has no rights to the underlying assets until the check is presented for negotiation.

If cash continues to sit in an account (for example, because checks were not cashed), and the owner of the account cannot be located, THEN escheat may be applicable. If a plan issues a benefit check to a beneficiary or participant, and the check goes uncashed beyond the negotiable period, the underlying funds continue to be owned by the beneficiary/participant not because of the rights established by the check, but because the beneficiary/participant is considered to be the owner of the funds. Because of ERISA preemption, this amount may not be escheated.

Therefore, an uncashed check to a service provider does not trigger escheat because the provider has no ownership interest in the underlying funds -- and ERISA's preemption of escheat is irrelevant.