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Read the latest blog posts by Retirement Clearinghouse addressing the problem of uncashed checks in defined contribution plans.
Beyond Missing: Targeting Unresponsive Participants in Retirement Plans
Writing in the RCH Consolidation Corner blog, Tom Hawkins examines the phenomenon of ‘unresponsive’ participants, which he defines as participants “for whom a plan has correct contact information, but who fail to respond to plan communications.” This sub-set of missing participants presents plan sponsors with unique challenges, because “the challenge is not finding them – it’s engaging them.” Hawkins continues by identifying six major drivers of unresponsive participants, while offering plan sponsors six best practices to minimize them.
Three Steps to Getting Off the Uncashed Distribution Check Treadmill
If you’re a defined contribution plan sponsor struggling with uncashed distribution checks, it can feel you’re on a never-ending treadmill. However, there are effective strategies that can greatly reduce the time, cost and risks associated with uncashed checks. Writing in the RCH Consolidation Corner blog, Tom Hawkins outlines three key steps to getting off the treadmill, including 1) a proactive program of locating missing participants, 2) eliminating the automatic cashout of sub-$1,000 balances and 2) utilizing safe harbor IRAs to resolve stale-dated checks.
The Risky Business of Cashing Out Plan Balances Below $1,000
Writing in the RCH Consolidation Corner blog, Tom Hawkins examines the “risky business” of automatically cashing out sub-$1,000 balances of separated participants. Hawkins writes that the practice, “may seem like an expedient approach to rid a plan of small balances” but “carries undesirable side effects for both the plan and for its participants” including uncashed distribution checks and unnecessary cashout leakage. The best approach, continues Hawkins, is to “adopt auto portability, which delivers all of the benefits but none of the flaws of old-school automatic rollovers.”
A More-Enlightened Approach to Uncashed Distribution Checks
No retirement plan sponsor likes the idea of dealing with uncashed distribution checks, nor do they wish to draw unwanted regulatory attention or to become embroiled in costly litigation. Unfortunately, many plan sponsors place themselves in precisely that spot, becoming unnecessarily over-burdened with unresolved uncashed checks, while inviting unwanted regulatory scrutiny and/or legal challenges by having flawed uncashed check policies. In his 2/8/24 article in RCH's Consolidation Corner blog, Tom Hawkins lays out a "more-enlightened" approach to the problem of uncashed distribution checks, seeking to minimize their numbers, while simultaneously steering clear of the “red flags” that could land them in hot water.
As Time Passes, The Gains Become Harder
RCH's Tom Hawkins, writing in the Consolidation Corner blog, observes that our nearly 45 year-old defined contribution system may face diminishing returns as it tries to generate future growth, and should focus on quality and efficiency as it simultaneously expands access. Using fitness as an analogy, Hawkins offers a "workout plan" for the DC system, including plugging leakage through increased portability and emergency savings, while fostering increased retirement savings consolidation to avoid an explosion in small accounts. When combined with expanded access initiatives, these measures can dramatically increase Americans' retirement security, over and above expanding access alone.
Dialing Up the Intensity of Missing Participant Searches
Writing in RCH’s Consolidation Corner blog, Tom Hawkins helps plan sponsors understand how and when they should increase the intensity of their missing participant searches. When it comes to locating missing retirement plan participants, Hawkins notes that “there’s no substitute for an effective electronic, or ‘e-search.’ However, retirement plan sponsors will inevitably encounter scenarios where periodic e-searches alone will not suffice.” Hawkins provides plan sponsors with six actionable steps to increase search intensity and offers tips on how to minimize the cost & effort associated with missing participants.
Why Missing Participants Are So Misunderstood
Writing in the Consolidation Corner blog, RCH's Tom Hawkins examines the topic of missing participants, which he states: "is a problem that’s ill-defined and poorly understood, and where fundamental misunderstandings exist, inadequate solutions – paired with the prospect of unwanted regulatory attention or audits – can follow." Hawkins asserts that "taking proactive steps to conduct searches, and turning on plan features that promote retirement savings portability are the key steps required to getting off the missing participant treadmill."
401(k) Portability in Four Movements
RCH's Tom Hawkins examines the experience of a very large (250,000+ participants) 401(k) plan sponsor that has been highly successful in delivering improved participant outcomes by incrementally adopting a full program of retirement savings portability. Looking at four distinct five-year periods that coincided with increasing levels of portability and improved participant outcomes, Hawkins writes that "there’s no finer example of those [improved] outcomes than the multi-year, real-world experience of this plan sponsor, where thousands of participants increased their prospects for a timely and comfortable retirement."
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