Seyfarth Synopsis: The IRS recently issued somewhat helpful guidance to plan administrators on what to do about the constant problem of uncashed benefit checks from qualified retirement plans. The initial excitement upon hearing the news, however, was quickly met with disappointment as the realization set in that the guidance was limited.
For more background on this IRS Revenue Ruling, click on our client alert. For now, suffice it to say that the guidance applied narrowly to benefit checks that are required to be issued to participants. So, for example, a small amount cash-out check issued following termination of employment, or a check issued to a participant who made a distribution election. In these situations, the IRS advises that the participant’s failure to cash the distribution check does not affect the employer’s obligation to withhold and report taxes under the assumption that the participant had control of the check but for one reason or another simply didn’t cash it.
The more prevalent problem plaguing plan administrators is the “case of the missing participant.” These are participants who have gone missing despite the plan’s good faith efforts to find them. Plan administrators face a genuine dilemma about how to handle required distributions to such AWOL account holders. If the administrator gets returned mail and is unable to identify a better address, no distribution check will be able to be issued. Or perhaps a check is issued but gets returned as undeliverable. In these situations, plan administrators have been left to devise their own practices aligning with the plan qualification rules and their third party administrator’s systems as best they can.
The very agencies in charge of enforcing the plan qualification rules and fiduciary obligations appear to not have their arms around the situation. They acknowledge that guidance is needed in this area and are working on it. So, as the saying goes “the check is in the mail.”