Considerations About Direct Deposit for Cashouts

Sponsored by: MFS Investment Management

Uncashed checks from force out payments can be a headache for plan sponsors as they try to track down participants and addresses and get them to deposit their funds. A member reached out stating they are looking at the idea of direct depositing force out payments to bank account information on file, with permission, as a way of reducing the number of unclaimed checks and was curious if other plan sponsors have done this. We asked members if they use direct deposit for unclaimed checks or if it is something they are considering. A quarter of respondents indicated that it is something they are considering while 62 percent said they are not doing it or considering it, though many think it’s a good idea. Thirteen percent answered “yes” to the question, though I am skeptical that they are all currently using this method as their write-in responses indicated they think it would be a good idea but not that they have implemented it. See below.

Not doing or considering it:

• Feel there is too much fiduciary risk to do anything but paper check default unless the employee provides banking information to third party recordkeeper.  The employee would then need to direct the check to be sent electronically.
• For us, that would be a lot of manual work, so not an option.
• good idea
• Great alternative
• great idea
• I like the idea in theory, but if we can't track people down to get a check to them, how are we going to get current bank account info? I think the problem lies in finding people who have moved.
• I like the idea.
• I think it's a good idea. Currently, we do not have force out 401K or Pension distributions
• I think that would be a great option for employees and would save some companies lots of time tracking down old, outstanding checks.
• I worry that it would lead to more errors
• I would be hesitant, since these force-out distributions are being sent to terminated participants whose banking information may or may not be the same, depending on how long ago they left employment.
• I would use this option
• If it's legal, I like the idea
• If you verify that the account is still in the person's name, that would work.
• Interesting idea but if the direct deposit failed, the funds would have to go back to the 401k account only to be cashed out by check later.
• Might be difficult to get updated banking information when the employee is already gone.
• No interest
• Ok with it as long as their is participant consent.
• our record keeper takes care of reissuing unclaimed checks for 401k purposes.
• Plan Sponsors should ensure they exhaust all measures of contacting the participant prior to forcing distributions to addresses that may be outdated. Otherwise, the check could be fraudulently processed and the Plan Sponsor is liable.
• seems like a viable possibility
• That’s fine.  But once they have been retired for a period of time, the banking information may be wrong.
• This could be a good option, but you could run the risk of the account being closed after the employee terminates.
• This would be a great option as checks often go uncashed and we have to chase down former employees.
• Voya places them in a stale check and until the former ee acts no action is taken. But HR contacts via phone and e-mail every 6 months for the participant to act, and if no electronic communication by mail at least one time per year.
• We would not do this.

Considering

• Good idea!
• Great idea
• I think this would be a good option with employee consent
• I'd like to know more.
• If the information is recent, I think it's a good idea.
• It would be my preference.
• It would certainly decrease the unclaimed check count and increase efficiency which I see as a win win!
• Much prefer this idea over paper checks.
• Seems to be a reasonable alternative
• That's an interesting idea. Sure would address the $0.45 check that an active participant can't be bothered with cashing.
• Think it makes a lot of sense to make it easy to transfer in/out of plans.  Seems it might also assist with security concerns over checks in the mail.
• We think it would be a good idea. Our problem is that so many of our employee population do not have a bank account.

Yes

• Completely agree.
• I don't think we would use this option.  There are payment information sharing rules in some states where careful consideration would need to be given.
• I think it's viable if done in a reasonable amount of time from separation.
• It's a faster way for the EE to receive their $$ and probably more secure with today's technology.
• We feel this is a positive item.
• We offer employees the option for multiple accounts related to banking information, so it could be difficult to monitor.
• We permit for both 401(k) and pension payments to be direct deposited if elected.  However, we have found, especially for monthly pension payments, that we are not always notified when someone dies.  This creates a problem of overpayments to review.
• With consent I think it is a much safer, quicker and more convenient method of issuing plan distributions. Any plan loans or hardship withdrawals are already paid by direct deposit so why not include the force out distributions.