Similar to the missing participant problem, plan sponsors face significant uncertainties when navigating the issue of uncashed distribution checks. On one hand, regulators increasingly view the existence of uncashed checks as a sign of fiduciary weakness – a red flag indicating that participants may not be receiving the benefits they are owed. On the other hand, plan sponsors must operate within a complex regulatory environment that provides limited direct guidance on how to handle these situations when they occur.
In this environment, it is vitally important that each retirement plan maintain a formal, documented and defensible uncashed distribution check policy – one that outlines the plan’s procedures, establishes consistent practices and mitigates fiduciary risk.Below, we review key elements to consider in building a policy. These components are for illustrative purposes only and do not constitute legal advice. Plan sponsors should work closely with ERISA counsel when developing or refining their own policies.
Also, conforming with the policy framework we present below, Retirement Clearinghouse (RCH) offers a sample Uncashed Distribution Check Policy, available for download here.
Key Components of an Uncashed Distribution Check Policy
The following sections reflect a sample, high-level structure to consider for potential inclusion in a policy document.
Section 1: Purpose
An effective uncashed check policy starts with a clear statement of intent, creating a compliant, standardized framework for addressing uncashed checks, and ensuring consistency with ERISA, IRS, and DOL requirements. The policy’s purpose can include:
- When and how to use automatic rollovers to safe harbor IRAs
- How to manage checks that have already been issued but remain uncashed
- When the plan may transfer already‑distributed but unclaimed amounts to a taxable savings account in cases where the funds are not eligible for rollover
Section 2: Key Definitions
A strong policy includes a section defining clear terminology so that all stakeholders – plan administrators, recordkeepers, auditors, and fiduciaries – are aligned. Common definitions include:
- Automatic Rollovers / Safe Harbor IRAs under DOL Reg. 29 C.F.R. §2550.404a-2
- Mandatory distribution thresholds, including SECURE 2.0’s updated $7,000 limit for eligible small balance cashouts (if adopted by the plan)
- Eligible Rollover Distributions (ERDs) versus non-eligible distributions
- Tax Treatment of Uncashed Distribution Checks, emphasizing that withholding and 1099‑R reporting are not reversed
Section 3: Policy Statements
This section forms the core of the policy, outlining how the plan handles different uncashed check scenarios.
Use of Automatic Rollovers for Small-Sum Eligible Mandatory Distributions
If properly crafted, this policy statement ensures consistency in mandatory distribution processing and will minimize the number of checks issued in the first place, including:
- The handling of ERDs between $1,000 and $7,000 for the purpose of automatically rolling over to safe harbor IRAs when participants do not make an election
- For ERDs ≤ $1,000, where balances can be rolled over to a safe harbor IRA, vs. issuing a check
- Treatment of Roth amounts, which must be rolled to a Roth IRA
- Non‑ERDs (e.g., RMDs, hardship withdrawals, corrective refunds) that cannot be rolled over
Procedures for Checks Already Issued and Remaining Uncashed
This policy statement affirms:
- Treating the distribution as completed
- Reasonable search efforts are initiated, in accordance with the plan’s missing participant procedures
- Replacement checks may be issued
- Participants may still complete a 60‑day rollover, if still eligible (participant-initiated only)
- For missing participants with amounts ≤ $1,000, escheatment to a state unclaimed‑property fund may be permissible in accordance with the conditions set forth in DOL FAB 2025-01
- The plan may use automatic rollovers for stale-dated ERDs ≤ $7,000
Transfer of Non‑Eligible‑Rollover Amounts to a Participant‑Titled, Taxable Savings Account
This advanced option is available only when a distribution check has already been issued, the amount is not eligible for rollover, and reissuance attempts fail or the participant requests this method. The policy statement should clarify that:
- The funds are no longer plan assets
- The receiving account must be titled to the participant
- No revised Form 1099‑R may be issued
- Identity confirmation and documentation requirements apply
Using a Safe Harbor IRA for Unresolved ERDs on Plan Termination (DC Plans Only)
To address unresolved balances that are ERDs, use a qualified safe harbor IRA provider instead of issuing checks.
Section 4: Roles and Responsibilities
This section of the policy assigns roles and responsibilities to the plan administrator and to the recordkeeper / trustee.
Section 5: References
Finally, this section includes references to applicable legislation, regulations or guidance that applies to various policy components.
The Bottom Line
While uncashed distribution checks may sometimes seem like a minor administrative nuisance, they carry real fiduciary and regulatory implications. Establishing a detailed, consistently applied, and legally vetted uncashed distribution check policy is one of the most effective ways for plan sponsors to protect both participants and the plan itself.
Download a sample Uncashed Distribution Check Policy here, and for assistance in resolving uncashed distribution checks, download the RCH Uncashed Distribution Check service brochure here.