Missing Participants/Uncashed Checks

[Guest Markos]

A couple of questions

1. If an individual is receiving regular distributions but is not cashing the checks, is it okay to stop sending them? I know uncashed checks are a nightmare and there isn't much guidance, but I'm curious as to what others do in these situations.

2. If you send out the RMD for a person who has not made an election using the default assumptions and the individual later comes back with new information (for example, you thought they were married but it turns out they are single so a 50% QJSA was incorrect) can you retroactively change the old distributions? Can you change the distributions going forward once you've started if it's an annuity?

Thanks in advance for any help.

[GMK]

For number 1, I agree that they are a nightmare.

It may help to remind the individual that taxes are due whether or not the checks are cashed.

[david rigby]

1. Stop? Does the plan permit that? (highly unlikely)

2. This might also be governed by plan provisions. Or is an opportunity to create a written administrative policy.

[John Feldt ERPA CPC QPA]

The powers and authority granted to the Plan Administrator should be reviewed - these should be listed in the plan document and likely include the authority to direct the Trustee regarding all disbursements from the Trust and to obtain and maintain a record of all data necessary for proper administration of the plan.

It might be reasonable to first perform a search using someone like PBI (http://pbinfo.com/) or some other firm to obtain clues as to whether or not the payee might actually be deceased (I am not with PBI but a client of mine used them for a while when I was with another firm). If the payee does not show up on the list of possibly dead, then some type of written correspondence should go out to address regarding these uncashed checks. As a fiduciary, your obligation is to all of the participants in the plan. If you keep sending out benefit checks that aren't being cashed, but are just piling up on a doorstep, then I would get concerned about other potential problems, so ignoring these uncashed checks does not seem prudent to me.

So, if you have no assurance that the check is actually getting to the payee, it seems to me a reasonable fiduciary would at least send correspondence to the address of record, mention that the checks have not been cashed, and explain what steps the plan administrator intends to take. These steps could include a temporary cessation from sending such payments until such time that the participant responds. Perhaps suggest direct deposit in this correspondence.

Hopefully these checks have strict expiration dates, perhaps 90 or 180 days after issuance. After the checks expire, the payee would have to contact you or the bank anyway to get the funds re-issued.

Also, remember, you probably should not just rely on the results of the death search, sometimes a false negative can show up on the list. You should send correspondence to explain that the payee was listed in an outside agency database as deceased, and you are requesting something to confirm the actual status of the payee in order to keep your records accurate.