Stale Uncashed Checks After Plan Termination - what to do with them?

[waid10]

Hi. We terminated our DB plan last year. We have been notified by our trustee that there are about 10 participants (that all made affirmative elections as to their account balances) that have not cashed their checks. These checks range from 9 to 12 months in age. The trustee says they need to return these funds to us (the employer/plan sponsor). But the plan trust is closed. We have filed Form 501.

We are trying to track these people down to find out why they haven't cashed their checks. The trustee is saying that even if we find some or all of these people, they (the trustee) cannot re-issue a check. They say that they have to send the funds back to us.

With the plan trust closed, can we (the employer) even take these funds back? If so, how do we hold these funds. We are confident that we can find all of these participants (4 of them are active employees).

Thanks for any guidance.

[Bill Presson]

I would contact Penchecks and see if they can help you out.

http://www.penchecks.com/our-solutions/trust-resolution/missing-distributees-solutions/

[My 2 cents]

"We are confident that we can find all of these participants (4 of them are active employees)."

It's 10 pm. Do you know where your employees are?

It must be the case that the plan's termination is not jeopardized. Checks were sent out, a Form 501 was filed, the trust was closed. Try calling the PBGC to see if they have a recommendation. I would suggest calling the DOL or IRS, but I think you will probably have better luck finding someone at the PBGC (and they may have a phone number for someone to call at the DOL or IRS).

[Mike Preston]

Somebody signed the 501 before confirming the last check was CASHED? Really?

[My 2 cents]

Why not?

What I am trying to understand is why can't the trustee just stop payment on the stale checks and issue new ones? Wanting to return the money to the plan sponsor makes no sense.

[shERPA]

In a PBGC-covered DB plan, the funds have to go to PBGC under their missing participant program. They don't permit IRA rollovers. Been there, done that.

http://www.pbgc.gov/prac/terminations/missing-participants.html

[waid10]

Thanks for the responses. But I don't think the missing participant program is the right course. We can find these people. They aren't missing. Four of them are still active employees. What we need to ask them is why they haven't cashed their checks. Did they lose the check? Did they forget? etc. We believe that at least one of the recipients has died. I am still at a loss as to what to do if the trustee insists on returning the funds to the employer.

[My 2 cents]

Somebody signed the 501 before confirming the last check was CASHED? Really?

You may only get a month to prepare and file the 501. There is no option to wait for the checks to all clear.

[Mike Preston]

I thought the month thing was modified such that if the 501 is filed within 90 days then the PBGC won't consider it late. So, the "real" due date is 90 days. Yes?

[My 2 cents]

I thought the month thing was modified such that if the 501 is filed within 90 days then the PBGC won't consider it late. So, the "real" due date is 90 days. Yes?

Even so, none of the outstanding checks would have gone stale. The plan has fulfilled its duty to pay when the checks are sent out, especially if the addresses are known to be correct. There should be no duty to follow up and make sure that the checks were cashed.

The payor can never give the money back to the sponsor - if they won't just do the right thing and issue new checks, they would return the money to the plan trust. I personally see no reason for the sponsor or the plan to have to suffer any consequences due to gross negligence on the part of the participants who mishandled their benefit payments.

[Mike Preston]

If the 90 days is getting close, the correct course of action is to call the PBGC and ask for an extension. I can't imagine them not granting it. Just like I can't imagine the PBGC not staking out a position that is antithetical to yours, complete with sanctions.

[My 2 cents]

Judging from the original post, the benefits were "paid out" way over 90 days ago. The 501 was signed and filed, perhaps half a year ago.

Isn't issuance of a check to a participant sufficient to meet the plan's obligation to distribute plan benefits? Has the PBGC ever given any indication that plan fiduciaries have a duty to make sure that lump sum checks are actually cashed? Absent something to that effect, the PBGC cannot assert that there have been any failures and cannot impose sanctions.

The problem here is your incompetent "trustee" who won't do the right thing and stop payment on the original checks that are still outstanding and issue new ones. That is clearly an unacceptable position to be taking.

[Mike Preston]

"Has the PBGC ever given any indication that plan fiduciaries have a duty to make sure that lump sum checks are actually cashed?"

Seriously?

Check to see what is being certified on the 501 and then get back to me.

[My 2 cents]

The 501 instructions do call for copies of the cancelled checks. Given the fact that there is nothing whatsoever that the sponsor can do to make the participants actually negotiate the checks and that there are deadlines for submission of the Form 501, what is the sponsor supposed to do? There are grounds for extending the 501 deadline but no reference to anything like "We sent the payments out on a timely basis but some of the checks have not been cashed yet, and if they are not cashed in the next X days, they will go stale. So please extend the 501 filing deadline indefinitely until we get all the checks cashed."

Even then the plan's "trustee", by refusing to reissue the checks and saying that the money must be returned to the sponsor, is not offering a course of action that would be acceptable to any governmental agency. The money going back to the sponsor before all benefit obligations have been satisfied is totally impermissible.

[Mike Preston]

They won't do an indefinite extension but they will effectively do the same thing by granting incremental extensions. At some point I would expect the PBGC to offer an alternative to treat the non-cashed check as stale along with the participant as missing.

I can't speak to a Trustee that fails in its fiduciary capacity. Separate issue and one that the PBGC is likely to shrug at which could, as you note, leave a plan sponsor with nothing but bad choices.