Might a turnover to a State’s abandoned-property administration be useful for an amount that is not rollover-eligible?

About EBSA’s Field Assistance Bulletin No. 2025-01 (Jan. 14, 2025), many have remarked that it might be incongruous to use a turnover to a State’s abandoned-property administration instead of a rollover to an Individual Retirement Account.

But what about an amount that’s not rollover-eligible because it’s the § 401(a)(9)-required distribution?

Example: Mary severed from employment in 2016, and has made no communication to her individual-account retirement plan since. All of Mary’s account is non-Roth. In 2024, Mary reached age 73. Mary has not requested any distribution. If nothing changes before April 1, 2025, the plan provides an involuntary distribution of Mary’s § 401(a)(9)-required minimum. Following Mary’s December 31, 2024 account balance, assume her to-be-paid § 401(a)(9)-required minimum distribution is $900. The plan mails a check for that amount to Mary’s address of record. The plan gets no bounce-back or other notice about the address, and the plan’s use of LexisNexis and other tools confirms that the address of record still is Mary’s address. After seven months, Mary has neither deposited nor presented the check. The plan administrator’s repeated efforts to communicate with Mary got no response.

Is it a given that the minimum-distribution amount cannot be put in an IRA?

After a suitable noncommunication period, might the plan’s administrator turn over the April 1, 2025 payment amount to the relevant State’s abandoned-property administration?

Or might the plan’s administrator do something else?

I believe Inspira has a program where plans can distribute amounts into an account that is taxable.   I THINK my firm has done this now and then.   

Thank you for the useful information.

Would the retirement plan’s fiduciary be responsible for a prudent selection of that bank, the account, and the fees?

If a plan’s administrator decides not to keep the uncollected money and an account for the participant, might it be easier to defend as prudent using the State’s regime for abandoned property?

I was always under the impression that we as fiduciaries or sponsors were unable to escheat unclaimed funds to a state unclaimed property fund.  Is that still true?   We are now looking at companies such as Retirement Clearinghouse and Inspira for our unclaimed small balances.   I believe we have a much better chance of finding our missing people than they do, although our state does an excellent job reuniting people with their money.  I'd rather give it to the state or keep it ourselves rather than give it to a company which will deplete the balance with fees, but we got dinged by the DOL in our latest audit for not distributing funds to people who were dead with no survivors, left the country with no forwarding address, ignored letters AND phone calls, or were undocumented and used fake names and SSNs, just to name a few of our problems.  There are people in my organization who feel we need to absolve ourselves of responsibility and possible DOL action by offloading those accounts, but I am not convinced that is in the best interests of the participants.

The Labor department’s Employee Benefits Security Administration released a temporary nonenforcement policy. https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/guidance/field-assistance-bulletins/2025-01.pdf

That nonrule instruction to government employees does not change the law. But many people guess that a fiduciary’s turnover of no more than $1,000, in the circumstances and under the conditions the FAB recognizes, is unlikely to attract a participant’s, beneficiary’s, or alternate payee’s lawsuit.

For situations in which:

an involuntary distribution was not rollover-eligible,
is not collected,
has been tax-reported,
the facts meet the relevant State law’s definition of abandonment, and
the plan’s fiduciary has decided not to keep an account for the distributee,

I wonder whether some fiduciaries might consider a turnover to abandoned-property administration, evaluating whether it might be less harmful than what else the fiduciary might do.