No More Paper Checks

[spencerhastings]

Hi all.  We had a client with a db plan recently ask if they can stop offering new retirees the option to receive pension payments via paper check.  Client was also curious as to whether they can convert participants currently in pay status who receive checks to direct deposit.  I haven't looked into this yet, but I feel like there's no way either option is permissible.  

If anyone has considered this issue before, I'd love to hear from you!  Thanks. 

[Peter Gulia]

Is your client considering a presumption of direct-deposit but delivering a payment card for a distributee who identifies no bank account to receive a direct deposit?

Is your client's plan ERISA-governed or not?  ERISA might preempt some State laws that otherwise might interfere.

 

[Larry Starr]

On 1/31/2020 at 12:19 PM, spencerhastings said:

Hi all.  We had a client with a db plan recently ask if they can stop offering new retirees the option to receive pension payments via paper check.  Client was also curious as to whether they can convert participants currently in pay status who receive checks to direct deposit.  I haven't looked into this yet, but I feel like there's no way either option is permissible.  

If anyone has considered this issue before, I'd love to hear from you!  Thanks. 

They probably can't, and it probably isn't worth trying to mandate it.  But they can offer them the option of direct deposit if they have that capability. They can offer existing retirees the same deal. But in either case, it will be at the option of the participant.

There is a federal law that can allow it, but the states mostly override that.  Here is some info on the issue:

• The Electronic Fund Transfer Act (EFTA), also known as federal Regulation E, permits employers to make direct deposit mandatory, as long as the employee is able to choose the bank that his or her wages will be deposited into.
• Alternatively, employers can choose the bank that employees must use for direct deposit. But in that case, the employer must also provide employees another means of payment, such as cash or paper check. The employee can then decide whether to go with direct deposit at the bank of the employer’s choosing or with the other means of payment.

• State Law

• In some states, an employer can make direct deposit mandatory, provided certain stipulations are met. For instance, employers in Kansas, Indiana, Texas, Missouri and South Carolina can require employees to accept direct deposit, but the employer must provide another payroll payment method — such as payroll card, cash or check — to employees who do not have a bank account.
• In many states — including California, New York, New Jersey, Florida, Vermont and Illinois — employers must obtain written permission from employees in order to pay them by direct deposit. A good rule of thumb is to require written authorization from the employee, even if state law doesn’t say to.
• In some states that allow employers to require direct deposit, the rules are very specific. For example, in Utah, an employee cannot refuse payment of wages via direct deposit if:
• In the prior year, the employer’s annual federal payroll tax deposits amounted to at least $250,000, and;
• At least two-thirds of the employer’s workers are being paid by direct deposit.
• At the very least, the state may adopt the provisions of Regulation E. If the state extends additional protections to employees, the employer must use the law offering the employee the most benefits. And if the state does not have laws on direct deposit, federal law applies.
• You can determine your state’s stance on this by examining its wage payment statutes, which may also require that you give employees a pay stub each time they are paid — whether by direct deposit, check, cash or payroll card.

Here is a link to a chart of state by state rules (as of 2017 it appears):  http://www.hrknowledge.com/wp-content/uploads/2017/08/Direct-Deposit-State-DD-Laws.pdf

[spencerhastings]

Thank you, Larry!  That's very helpful.

 

[FPGuy]

FWIW, we've seen several recordkeepers eliminate direct deposit because of increasing fraud related to electronic transactions. Implications and liabilities being hashed out. See Naomi Berman vs. Estée Lauder et. al  involving the Estee Lauder retirement plan.               

 

[Peter Gulia]

FPGuy, thank you for your observation.

I've seen recordkeepers preclude direct-deposit for a non-recurring distribution but allow direct-deposit for scheduled monthly payments, especially if the payments are scheduled to continue for life or for 120 months or more.

Are other BenefitsLink people seeing service providers take away direct-deposit for periodic payments?

 

[spencerhastings]

That's a really interesting point, FPGuy.  I hadn't considered this from a cybersecurity point of view.