401(k)ology – Where’s the Cash? Missing Participants and Uncashed Distribution Checks

Every plan sponsor eventually asks the same unnerving question: Where did the money go? Distribution checks were issued, but the checks never cleared. Participants terminated years ago, and their addresses bounced back, or they simply stopped responding. Meanwhile, audit season looms, the Department of Labor states you must take “reasonable search steps,” and Plan Administrators wonder whether those stale checks commingled in the forfeiture account must be used up. Sound familiar? It is a common shell game of lost participants, abandoned 401(k) accounts, and missing cash.

One of life’s mysteries is how so many people can walk away from retirement accounts. It is a phenomenon that has likely been exacerbated in recent years by automatic enrollment and participants on autopilot, as well as life events including frequent moves, name changes, job changes, and email churn.

The numbers are actually staggering, with roughly 32 million missing or forgotten accounts with over 2 trillion in retirement plan assets unaccounted for, according to a recent report called “The True Cost of Forgotten 401(k) Accounts” from Capitalize. The scale of the problem prompted Congress to establish the Retirement Savings Lost and Found database in SECURE 2.0, which is intended to help reunite participants with their lost and forgotten retirement plan accounts.

This post breaks down why missing participants and uncashed checks happen, why they matter, and how to get ahead of them without turning your retirement plan into a private detective agency.

Missing Participants

A participant is “missing” when the plan sponsor cannot locate them or the participant is unresponsive, even after making reasonable efforts to track them down. For the purpose of this post, we are focusing on missing participants with small account balances below the plan’s cash out threshold. However, the issue is not limited to those with small balances since terminating plans may experience the same problem locating participants with much larger account balances (which may be forced into an IRA).

How do these small account balance problems get triggered?

• Checks under the plan’s cash-out threshold get mailed and never deposited (typically small balances under $1,000 issued as direct payments when no election by the participant is made).

• Required Minimum Distributions (age 73), plans must timely distribute RMDs to maintain operational compliance. Many RMDs are issued for less than $200, and the plan must issue the direct payment checks to meet either the initial RMD deadline of April 1^st or the subsequent RMD payment deadline of December 31^st. Older former participants who are nonrespondent (or possibly deceased) can push the issuance of the RMD checks against these timing deadlines; forcing the plan to issue checks to incorrect or stale addresses.

• Terminated participants choose paper checks instead of ACH; the check expires and becomes “stale.”

• Beneficiary payments where documentation and addresses are not available.

Since putting pictures on milk cartons is no longer an effective option, plan fiduciaries need to establish and follow an administrative process to re-unite these forlorn participants and beneficiaries with their retirement funds.

Steps Required to Locate Missing Participants

In January 2021, the DOL issued a “Best Practices” release for plan sponsors. The document starts by noting that the first step in addressing the problem is knowing that it exists and then capitalizing on this awareness by putting procedures in place to determine when there are missing participants. That means that the DOL expects plan sponsors to regularly monitor the participants in the plan, especially terminated participants. Does your recordkeeper provide you with a list of returned mail? Are you provided a list of uncashed checks? Are you taking immediate action to remedy these problems?

Plan sponsors should take reasonable steps to keep contact information current and retain documentation confirming their efforts. There are four basic steps that should be followed to prevent participants from going missing:

• Keep accurate census and contact data, regularly confirming addresses, emails, and phone numbers

• Communicate clearly why you are reaching out, including an offer to translate if English is not the primary language

• Search systematically, including online tools and commercial search services, and recordkeeper-provided search services

• Document your policies and record all steps taken to locate a missing participant

The DOL, the IRS, and the Pension Benefit Guaranty Corporation (PBGC) require specific search steps and dictate what happens to the accounts of participants who cannot be located. The initial search steps are as follows:

• Certified Mail: Send a notice via certified mail to the participant's last-known address to confirm receipt or prove that the mail was returned. Use of a tracked private delivery service is also acceptable if less expensive.

• Contact Beneficiaries: If a beneficiary is designated in the plan records, the fiduciary should contact them for updated information on the participant.

• Related Employer Records: Review company and other plan records, such as those from health plans or payroll, for updated contact information.

• Electronic Search Tool: Make reasonable use of free internet tools, including search engines, social media, and public record databases.

If those initial search steps fail, plan sponsors should consider these additional measures to locate missing participants:

• Use paid search services (commercial locator services and credit agencies)

• Search Registries (National Registry of Unclaimed Retirement Benefits)

• Use DOL’s Retirement Savings Lost & Found Database

• Notify colleagues (current or former co-workers)

• Document all actions (record all steps taken to protect against potential fiduciary breach claims)

Plan sponsors may need to take some clues from Sherlock Holmes and be logical and methodical in their search for missing participants!

Regulatory Guidance

In January 2025, the DOL issued Field Assistance Bulletin 2025‑01, allowing (temporarily) transfers of very small balances to state unclaimed property programs for missing/unresponsive participants. Small balances (typically $1,000 or less) and uncashed checks can now be transferred to state unclaimed property funds under DOL’s enforcement relief policy. This temporarily available approach (pending more formal guidance) should be a last resort after all other available location steps have been exhausted.

In addition, the IRS issued Revenue Ruling 2025-15 clarifying treatment of uncashed distribution checks. If a distribution check is issued and tax withheld, no refund or adjustment of the tax withheld is allowed, even if the check is never cashed and later canceled.

The original distribution must be reported on Form 1099-R for the year the original distribution check is issued. If the original check issued to the participant goes uncashed (or goes stale), a second check is issued. If a second check is issued for the same amount, no additional tax withholding is required (if the second check is greater, withholding applies only to the excess).

Exception for Terminating 401(k) plans
For terminating defined contribution plans (401(k), profit sharing, and 403(b) plans), plan sponsors may use the PBGC Missing Participants Program, including for certain uncashed checks after a cash‑by or stale‑date period. Again, this is typically for small balances under the plan’s cash out threshold (typically $1,000). Larger balances are rolled over to an Individual Retirement Account (IRA) established on behalf of the missing participants.

Uncashed Checks in the Forfeiture Account

Recently, a colleague noted that it is common practice for recordkeepers to deposit uncashed “stale” checks into the plan’s forfeiture account. Talk about having to become a super sleuth!

If uncashed or stale checks are deposited into the forfeiture account, the plan sponsor should take immediate action to locate the participant and have the check reissued, especially if the amount involved is in excess of $200. If all else fails, consider the state unclaimed property programs.

Here is the issue – if the participant’s money remains in the forfeiture account, it may get used to offset plan expenses or reduce employer contributions. If that happens, and the participant is finally located, the plan sponsor will need to cover the amount owed to the participant. That is not so bad because it is a wash for the plan sponsor. The real problem is tracking missing participants that are not located when forfeitures were used, and knowing that at some point in the future there is a list of former participants owed money from the plan.

For example, what if a significant period of time lapses and a participant comes forward stating they never received a distribution check. Will you know where’s the cash? This exercise will require excellent plan records to know if the participant is owed money or not. Since these are generally not large amounts, the amount of time involved to research the payment history can be cumbersome. Here are steps that should be taken to help you (and possibly your successor) figure out what shell the cash is hiding under:

1. Review the recordkeeper’s reports that show the amounts deposited into the forfeiture account frequently (at least twice per year).

2. Document the search efforts and methods used with applicable details (sample below).

3. Review the outstanding distribution checks at committee meetings and keep a running working copy in the plan’s permanent records.

4. If a very large plan, consider paying the recordkeeper for the additional lost participant locator services (roughly $1,000-$2,500 annually – and worth every penny).

Sample notes:

• Returned mail note-to-file: “On [date]” distribution check [number], $[amount] to [participant] was returned undeliverable.

• Attempts made: [list].

• Next action: [locator service/date].

• Hold reissue pending verified address: [note if in forfeiture account].

• Address verified: [date].

• Resolved: [date] reissued check [number] and $[amount] that was cashed on [date].

Keeping these details in the plan’s permanent records will save time, headaches, and detective work time (plus it looks good if the DOL or IRS audits the plan).

Retirement Savings Lost & Found Database

Data Collection
Pursuant to Section 303 of the SECURE Act 2.0, the DOL began collecting information to create a searchable online database that participants could use to see if they left any retirement benefits behind that they had forgotten about. The database is populated from the annual reporting on Form 8955-SSA, which provides the plan information, the participant’s Social Security number, and vested account balance. Plan sponsors are required to report terminated participants with a deferred vested benefit in the plan by the year following the year of termination of employment. The plan sponsor is also required to report when those same participants are finally paid out of the plan.

Practice Note: Plan sponsors and plan administrators should accurately report deferred vested benefits on the Form 8955-SSA each year and ensure the participants are reported again (Code D) when paid out. Otherwise, former participants are going to be informed they have a benefit in the plan and are going to ask to be paid out. The former participants will likely request proof that they no longer have an account in the plan and proof of when they received a distribution. Avoid these administrative headaches by accurately reporting the information each year on Form 8955-SSA.

Third-party administrators, plan recordkeepers, and service providers may also submit information to the database voluntarily through an Intake Portal, if the plan’s fiduciary provides authorization to do so. Access to the Intake Portal is encrypted and secure, requiring valid photo ID through a Login.gov account.

Locating Lost Retirement Accounts
Participants who need to be reunited with retirement benefits from private‑sector, ERISA‑covered plans sponsored by employers (defined contribution and defined benefit plans) must sign in to Login.gov and go through a rigorous identity verification process. After verification, the site searches for plans linked to the user’s Social Security number and returns plan names and administrator contact details (or no results found if there are no records).

If the database shows that a plan has reported money owed, users may contact the plan administrator to confirm whether benefits remain payable. Results are not a guarantee that money is owed; however, plan sponsors should be prepared to prove the former participant was paid out if the database records are inaccurate or incomplete.

Unfortunately, the database is limited to searching for oneself. Currently, you cannot search on behalf of a deceased spouse, although that may be a future enhancement to the database.

Conclusion

Lost participants don’t have to be an endless mystery or induce a migraine. With a standing playbook - monitor, search, document, and reissue - you’ll turn “Where did the money go?” into “Here’s the paper trail.” Use the DOL, IRS, and PBGC guardrails, and SECURE 2.0’s Lost & Found, to close the loop. Ready to retire the shell game? Put the process in place now so audit season feels routine, not like detective work.

Newfront Retirement Services’ team of advisors and service team is available to help you create a process to ease the burden of lost participant searches, so let us know how we can help! Feel free to contact me or just connect to keep up to date on all things ERISA 401(k): Joni_LinkedIn and 401(k)ology

Helpful Links:

• Department of Labor: Missing Participants – Best Practices for Pension Plans

• Retirement Savings Lost and Found Database

• Fact Sheet: Retirement Savings Lost and Found Information Collection Request

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