Unclaimed Funds in the United States

In the United States, if a pensioner never claims his or her defined benefit pension entitlement, the ownership of the underlying assets remains with the institution holding those assets. Thus, the employer of an ongoing pension plan, the PBGC, or the insurance company ultimately claims the money. For employers, the claim takes the form of lower required contributions due to the larger assets in the pension fund. The tax expenditures incorporated in these benefits were provided for the public policy purpose of encouraging the provision of pension benefits. While there is an excise tax on plan assets that revert to the plan sponsor when a plan is terminated, there is no recovery by the government of tax on assets that “revert” to the plan sponsor because they are never claimed. In a defined contribution plan, the money belongs to the worker or to the worker’s estate. It does not revert to the employer. If it is unclaimed, the pension administrator can discharge his fiduciary obligation to the former worker by establishing an Individual
Retirement Account (IRA) in the worker’s name at a financial institution. Some states
have claimed that after a certain number of years unclaimed money in defined
contribution pension accounts would escheat to the state (i.e., to one of the 50 states).
The Department of Labor has held, however, that state laws are preempted by the federal
ERISA pension legislation and that unclaimed defined contribution pension accounts
cannot escheat to the state but must remain unclaimed, with the hope that eventually the
former worker or his beneficiaries will claim the funds. The law in this area is unsettled
and further clarification in the future can be expected.
In the United States, there is some evidence on the magnitude of the problem
through data on federal government pensions. Between 1989 and 1997, more than $1
billion in pension checks to retired federal government workers were not cashed (Caplin
1997).

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