Seyfarth Synopsis:  Over the years, plan sponsors and administrators have wrestled with the question of what to do with the accounts of participants who left employment years earlier and cannot now be located.  Notwithstanding their best efforts, plans continue to maintain accounts of participants who are either missing or unresponsive to plan correspondence (“missing participants”). On January 14, 2025, the DOL issued Field Assistance Bulletin (FAB) 2025-01 that allows sponsors and administrators of ongoing defined contribution (DC) plans to transfer unclaimed small accounts to a state unclaimed property fund of the participant’s last known address provided the fund satisfies certain requirements.

The issue of what to do with the accounts of missing participants is an age-old question. In 2014 the DOL issued FAB 2014-01, stating that an IRA was the preferred destination for unclaimed defined contribution (DC) plan accounts. That same FAB also acknowledged that IRAs may not be available for terminating DC plans, and suggested that in certain circumstances, a state unclaimed property fund or an interest-bearing FDIC-insured bank account might also be appropriate. More recently, the DOL became concerned that IRAs may not be the sole (or even most) appropriate destination for unclaimed plan accounts, as IRAs charge fees that often exceed the investment returns of small accounts, resulting in the account being eaten away by fees. In fact, when plan sponsors started looking to IRAs as the destination of its unclaimed account balances, the sponsors found it challenging to find an IRA provider who would accept all accounts, particularly small accounts, and that the limited choices resulted in front end, back end, and/or annual fees that would quickly exhaust the account balance. From the fiduciary perspective, many plan fiduciaries were reluctant to make such transfers. As time passed, however, more IRA providers became available and fees dropped. But not necessarily to zero.