What are Stale Dated Checks?
ANSWER: Stale dated checks -- for qualified retirement plans -- are a variation of uncashed distribution checks. The primary distinction is that "stale dated" refers to the time from issuance (generally six months) after which a bank has the option of refusing to deposit or cash the check. Stale dated checks occur when retirement plan participants fail to cash or deposit a distribution from their qualified retirement savings account, for a variety of reasons, including an incorrect mailing address, a lost or misplaced physical check, a distribution check that was not anticipated, or as the result of inaction on the part of the participant. For qualified plans, stale dated checks represent a fiduciary liability, since the assets must be considered plan assets until the check is cashed or otherwise resolved. Plans can take steps to minimize the incidence of stale dated checks, as well as to resolve the situations that inevitably occur.
Why Do Stale Dated Checks Occur?
Stale dated checks are a growing problem for plan sponsors, as the numbers of small-balance accounts and separated participants grow.
Stale dated, or uncashed distribution checks typically occur under the following circumstances:
- Mandatory Distributions, less than $1,000: When plans cash out participants with balances of less than $1,000, it’s common for these checks to go uncashed.
- Uncashed Plan Distributions: Participants request distributions at their normal retirement age, or required minimum distributions at age 70-1/2 -- yet they never cash their checks.
- Returned Checks: Checks of any amount that are returned as undeliverable by the U.S. Postal Service
- Unresponsive Participants: Checks of any amount that are requested, but simply not acted upon by the participant
These problems can persist, as plan sponsors will often have incorrect address information, and neither alternate payees or beneficiaries can be found.
Why Are Stale Dated Checks Considered a Problem?
- Stale dated distribution checks are considered plan assets, so plan sponsors continue to incur administration costs, while participants are separated from their retirement savings.
- Additionally, stale dated check funds accumulate no interest or earnings, and if mishandled, can represent a potential liability to plan sponsors.
Links to Regulatory Information on Stale Dated Checks from Retirement Plans
- IRS Revenue Ruling 2019-19 - Failure to Cash a Distribution Check from a Qualified Retirement Plan
- IRS Automatic Rollover Notice 2005-5 (addresses involuntary cashouts below $1,000)
- U.S. Treasury Department 2021-2022 Priority Guidance Plan (see pg 4; #10 re: 2022 guidance)
Articles on Stale Dated / Uncashed Distribution Checks
- Uncashed Distribution Checks: An Ounce of Prevention is Worth a Pound of Cure
- The DOL is asking 401(k)s about uncashed checks
- DOL ‘Encourages’ Retirement Plan Fiduciaries to Recoup Uncashed Checks from Prior Recordkeepers
- Uncashed 401(k) Distribution Checks Gets DOL Direction
- Solutions for Missing Participants and Uncashed Checks
- The ‘Fix’ for Missing Participants, Uncashed Distribution Checks and Forgotten Accounts
- What should plan administrators do about uncashed retirement plan checks?
- Safe Harbor IRAs Are Not Always Safe
- Managing missing participants and uncashed checks
How Can Plan Sponsors Deal With Stale Dated Checks?
There are solutions that can a) proactively minimize the stale dated check problem to begin with, and b) deal with stale dated checks that do occur.
Proactive Solutions that Minimize the Stale Dated Check Problem:
- For all separated participants with less than $5,000, implement an automatic rollover (or safe harbor IRA) program. Importantly, be sure to include accounts with less than $1,000 in the automatic rollover program, as many plans elect to cash out these participants, unwittingly creating an even larger problem with stale dated distribution checks.
- Periodically update your records for lost or missing participants. Many separated participants do not maintain current information. A cost-efficient participant location service can increase the odds that mailed, physical distribution checks will reach their intended destination.
Solutions that Address Stale Dated Distribution Checks:
- For stale dated and uncashed distribution checks less than $5,000, work with an automatic rollover service provider to roll over their funds to a safe harbor IRA, established in the name of the participant. Upon opening and funding of the safe harbor IRA, your plan will be deemed to have fulfilled its fiduciary responsibilities. Ongoing, the automatic rollover service provider should continue to perform searches in order to re-unite the participant or their beneficiary with the retirement savings.
Auto Rollover Program
Auto Rollover IRA
Automatic IRA Rollover
Retirement Clearinghouse’s Stale Dated Checks Service
Retirement Clearinghouse offers a Stale Dated, or Uncashed Distribution Checks Service to plan sponsors, representing an enhanced standard of care for resolving uncashed, returned or stale-dated distribution checks.
When combined with the RCH automatic rollover service and the RCH missing participants search service, the problem of stale dated and uncashed checks will be dramatically reduced, and any uncashed checks that do arise can be quickly and effectively handled. You can be assured that RCH makes every effort to locate the participant (or their beneficiary) to unite them with their retirement savings.
Taken together, these attributes clearly establish RCH's Uncashed Distribution Checks Service as the most fiduciary-friendly stale-dated distribution check service in the industry.