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I am a trustee of my company’s ESOP and historically we have always issued distributions from the plan in the form of a check. However every year or two we will have a check get lost either in the mail, by the participant, or by an investment brokerage.  When this happens we will put a stop payment on the check and renew the stop payment one or two times while efforts are made to locate the check, but eventually if the check isn’t found we end up closing the checking account which is a hassle. 

We would like to move to an electronic form of payment so we don’t have this problem, but ACH payments won’t work because there’s no way to indicate who’s account it should go to when you route it to an investment brokerage’s bank (there’s no memo field as with electronic wires). Electronic wires are expensive because there are fees at both ends of every transaction.  And the daily check writing limit is prohibitive for using our bank’s Bill Pay system.

What method of payment do other ESOP companies use?  Is there a good way to make distributions electronically?


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If you use a Third Party Administrator (TPA) to help you run the ESOP talk to them.  Most of them work with someone as a paying agent. 

We use Reliance Trust Company (RTC) that will cut the checks/ACHs/Wires, issue 1099-R, forward federal/state withholding.

There is a firm called Penchecks that also does this service. 

Since the checks are written on their accounts it is their problem when a check gets lost. 

With RTC they are happy if the participant signs a Lost Check Affidavit where they agree to not cash the lost check if found and will reimburse the bank if it does get cashed.   I have a few clients that work with Penchecks but haven't gone through their lost check process but they have to have one.  In their case I know they don't just work with ESOPs but there are a good number of the 401(k) TPAs around here who point their clients toward that firm.  So Penchecks issues a lot of checks every year (so does RTC).  You aren't going to find a fact pattern they haven't seen by now.  

In short I would stop writing the checks and outsource it.  The only thing that might stop you is if you are a small ESOP.  I have some small ESOPs who write <10 checks/year they find these services a little pricey.   But maybe peace of mind of taking these hassles off your plate will be worth it.   The vast majority of our ESOP clients outsource this process to a paying agent.  

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