IRS Publishes Guidance Regarding Un-Cashed Distribution Checks:

On August 14, 2019, the IRS published Revenue Ruling 2019-19 (the “Ruling”). Under the Ruling’s hypothetical facts, an employer sponsors a tax-qualified retirement plan that does not include a Roth contribution feature. A distribution of $900.00 is required to be made from the plan to Individual A in 2019. Individual A’s entire account consists of contributions that have not yet become subject to income taxes, and Individual A has never made a withholding election with respect to her plan benefit. The employer processes the $900.00 distribution by withholding tax as required under Internal Revenue Code Section 3405(d)(2) and by mailing a check for the remainder to Individual A. Although Individual A receives the check and could negotiate it in 2019, Individual A does not do so and Individual A does not roll over any portion of the check amount.
Based on those facts, the Ruling makes the following conclusions: 

  1. Individual A’s failure to cash the distribution check does not allow her to exclude the distribution from her gross income for 2019 (or for any year).
  2. Individual A’s failure to cash the distribution check does not alter the employer’s obligations with respect to withholding of tax, or liability for payment of that tax for 2019 (or for any year).
  3. Individual A’s failure to cash the distribution check does not alter the employer’s obligation to report the distribution via a Form 1099-R for 2019.

A footnote in the Ruling states that “For purposes of this revenue ruling, whether Individual A keeps the check, sends it back, destroys it, or cashes it in a subsequent year is irrelevant.” However, the Ruling does not address the situation where a participant does not receive the distribution check. I will let you know if the IRS publishes guidance addressing that situation.
The Ruling ends by stating that “The Department of the Treasury and the Internal Revenue Service continue to analyze issues that arise in other situations involving uncashed checks from eligible retirement plans [e.g., 401(k) plans], including situations involving missing individuals with benefits under those plans.” Thus, in addition to current Department of Labor concerns about missing participants, it is clear that the IRS has concerns about this area as well. Plan fiduciaries should conduct discussions with their legal counsel regarding how to maximize their protection from penalties in this regard.
You can access the Ruling via this link: