Employers who sponsor retirement plans for their employees can protect themselves from state escheatment laws by updating the language in their plan documents, specifying how “lost” members’ money will be used, according to Bryan Cave LLP’s Employee Benefits & Executive Compensation Group.
Workers don’t stay working for the same employer for their entire careers anymore. Many people quit for other opportunities, leaving their retirement accounts behind. It’s not uncommon for employee benefit plans to accumulate significant sums of money in the accounts of these missing participants.
Many states have escheatment, or unclaimed property, laws that allow them to come in and take over these accounts if the participants or their beneficiaries can’t be found.
According to Richard Arenburg and Chris Rylands at the Bryan Cave firm, most employee benefit plans subject to the Employee Retirement Income Security Act can sidestep this potential leakage of plan assets by using clear plan language that provides for the forfeiture of amounts from the accounts of participants who are determined to be lost after a predetermined period of time.
It also should specify that the forfeited funds will be utilized either through a reduction of the sponsor’s contribution obligation or their application to reduce plan expenses.
The Department of Labor concluded that these types of plan provisions are to be honored irrespective of unclaimed property statutes that might otherwise dictate a contrary result. The plan documents also state that those accounts will be restored if the lost participants are later found, according to Arenburg and Rylands.
Plans that are not subject to ERISA can write in similar provisions to their plan documents.