Best Practices for Handling Uncashed Checks

Some plan sponsors are unsure about best practices for handling uncashed retirement plan benefit checks, but a new paper aims to help.

There is no clear guidance from the U.S. Department of Labor (DOL) or the Internal Revenue Service (IRS) on all aspects of the uncashed checks issue (see “Unanswered Questions About Uncashed Checks”). Regulations allowing plan sponsors to roll participant accounts of less than $5,000 were passed in 2001 and put into effect in 2004 (see “DOL Announces New Automatic Rollover Regulations”), but Lowell M. Smith, Jr., president of Inspira, an individual retirement account (IRA) recorkeeper based in Pittsburgh, Pennsylvania, that offers an automatic IRA solution for plan sponsors, tells PLANADVISER at the time there were few providers available for plan sponsors to work with, and especially few that would take amounts less than $1,000.

Although there are more providers in the automatic rollover market now, many plan sponsors never adopted a policy for automatically rolling over participants’ balances due to the lack of providers at the time, and even those plan sponsors that are now automatically rolling over small balances, may not have put cash-out provisions in their plan documents, Smith says. He recommends that as plan sponsors are now amending their plans for Pension Protection Act and other legislation provisions, they should consider adding cash-out provisions. “I would say, even though they can still just issue a check for amounts less than $1,000, they should roll those over too.”

Plan sponsors are not allowed to force out accounts greater than $5,000, but problems with uncashed checks for these larger amounts may still occur, Smith says. If a plan is terminated, some participants may not have responded to a notice sent to them and checks may have been sent to wrong addresses. “Plan terminations are the biggest problem we’ve found,” he says. “There could be uncashed checks out there for years. The participant may have died, so now the plan sponsor has to find beneficiaries, pay estates.”

In addition, sometimes plan participants and beneficiaries do give instructions for rolling over balances, but if they provide incorrect instructions, entities accepting rollovers may not be able to find account information and checks go uncashed, Smith notes. A plan sponsor can try to get in touch with these individuals for correct instructions, but sometimes they do not respond, or sometimes they’ve moved.

“Making Sense of the Uncashed Retirement Plan Check Dilemma,” written by Smith, gives providers and plan sponsors the information they need to institute a process for dealing with uncashed checks with which they are comfortable. The paper covers plan asset considerations, the issues arising from a “float” arrangement, searching for recipients and moving the funds.

According to the report, the DOL holds that each distribution remains a plan asset until the check is cashed or a wire transfer is successfully made, so it is incumbent upon plan fiduciaries to work with their service providers and attempt to locate these participants in order to get them to take action.

The report says it is important when framing a policy for handling uncashed checks to keep in mind that most of these uncashed checks are for smaller dollar amounts when determining the search steps that will be undertaken. Some steps can be costly, and since it is permissible and common to charge the accountholder the cost of the search and any check reissuance fees, the fee can severely reduce the amount of benefit to the participant. Given that fact, some policies limit the search process to the following steps:

  • Run a list of all uncashed check names through an electronic search process to determine if a better address can be located.
  • Send a letter to the best known address and wait a period of time—often 30 days after assumed receipt—to move the funds.


The paper mentions using the Social Security Administration’s letter forwarding service to help find participants and beneficiaries, but since the time the paper was written, the administration announced it is stopping this program (see “SSA Letter-Forwarding to Be Discontinued”). Some firms have introduced missing participant locator services plan sponsors may use (see “RCH Introduces Missing Participant Search Service”). Smith says this is another reason rolling accounts into an IRA makes sense.

If a check remains uncashed, plan sponsors may decide to restore the participant’s retirement plan account, or may decide to put the assets in a forfeiture account or other holding account with the plan provider. If the assets are restored within the same year, the plan sponsor can attempt to recapture taxes paid. If they do not, the account balance can be earmarked as after-tax or as a rollover, Smith says. There is no guidance saying interest for the time the assets were out of the account have to be applied, he adds. Many plan sponsors also do not put the assets back into the funds from which they came, and put them into the plan’s qualified default investment alternative (QDIA) or other more conservative fund instead.

At times, funds transferred to a checking account for the plan or placed into an account at a service provider awaiting the final transfer of the funds to an IRA or other retirement program, may earn interest—referred to as float income. This income may be retained or used to offset expenses for finding participants, although Smith says the interest earned is usually very small and likely won’t cover such expenses.

In order to avoid a “self-dealing” violation when it comes to retaining float income, the paper says, plan sponsors must:

  • Disclose situations when the float is generated and maintained;
  • Disclose when the float period commences and ends, and adhere to timeframes for mailing checks, electronically transferring funds or any other processes that may affect the duration of the float; and
  • Disclose either the rate of the float or how the rate is determined. An example would be that the float on funds pending distribution is based on prevailing money market rates.


The paper contends placing funds from uncashed checks into an IRA created for the benefit of the participant is often the most advantageous. It is clear from guidance by the DOL that uncashed check amounts (minus any fees related to searches) that could qualify for automatic rollover can be moved to an IRA, but it is less clear whether larger amounts can be moved to an IRA. However, some plan sponsors do this as well.

The key takeaway from the report, according to Smith, is plan sponsors should develop a policy for handling uncashed checks and should work with their providers to help them enforce the policy. The paper offers suggestions for what the policy should include. “As long as plan sponsors have a formal process, and it is reasonable, they should be safe with the DOL,” Smith says.

The paper, “Making Sense of the Uncashed Retirement Plan Check Dilemma,” is here.