Missing Assets: Unclaimed Pension and Retirement Account Search

► Missing Participant IRA / Default Participant IRA 

A Missing Participant IRA is established for an employee with an account balance or accrued benefit that has terminated employment but failed to provide the employer with a forwarding address. A Default Participant IRA is established for an employee with an account balance or accrued benefit of greater than $1,000 but less than $5,000, who has terminated employment but has failed to respond to the employer’s request for payout instructions.

It's important to note if the safe harbor provisions are complied with, the individual is no longer a participant in the plan after the rollover. Once rolled-over, plan fiduciaries are no longer responsible for the funds. Since the plan terms are no longer applicable, any beneficiary designation also may end when the rollover is made.

This net effect of all this is that it is now possible for a state government custodian to ultimately get possession of what was once an ERISA-protected retirement benefit, which would not otherwise be subject to local escheat.

SEP and SIMPLE IRAs   In a Simplified Employee Pension (SEP), employers contribute directly to IRA accounts established for employees. Because the employer, not the employee, reaps the tax benefit of the contribution, these accounts are ERISA-qualified. Savings Incentive Match Plans for Employees (SIMPLE) are also ERISA-qualified, because both employers and employees contribute to employee IRA accounts.

► Lost or Unclaimed IRA Individual Retirement Accounts 

There is no limit to the number of Individual Retirement Accounts that an individual can have. IRAs may contain a variety of investments including bank accounts, certificates of deposit, stocks, bonds, precious metals, commodities, and even real estate; but half of all IRAs are administered by and invested in various mutual funds. About one-third are held in brokerage accounts, while bank deposits and life insurance annuities make up the remainder.

Earnings on Traditional IRAs grow on a tax-deferred basis until withdrawals begin. About 15% of IRAs - totaling some $450 million - are held by those aged 70 and above. The average account value is around $100,000.

Due to the long term nature of this type of investment, each year large numbers of owners and heirs - who may not be aware of a deceased family member's IRA or rollover 401(k) - fail to claim accounts to which they're entitled.

While unclaimed 401(k) retirement plan assets are subject to federal guidelines mandated by ERISA, the Employee Retirement Income Security Act of 1974, most dormant and forgotten IRAs at banks, brokerages and insurance companies are not.

They come under the purview of state unclaimed property statutes, whereby a trustee takes custody of the funds based on a legal doctrine known as ‘escheat.’  It’s important to note, however, that in some cases 401(k) plan assets can lose their ERISA pre-emption and become subject to state escheat.

The rules for determining how a dormant and unclaimed IRA is treated depend on the type of account and the owner’s state of residence. Generally speaking, a Traditional IRA is considered unclaimed if a withdrawal is not made by age 70½; the age at which non-withdrawal triggers a 50% tax penalty under the IRS code. Both Traditional IRAs and Roth IRAs may be considered abandoned if one or more distribution checks remain uncashed, which can occur when the owner reaches age 59½ or before, if early withdrawal is taken.