New IRS Guidance Should Remind Employers to Retain Participants’ Current Address:

The IRS recently released Private Letter Ruling 202023007 (the “PLR”). The PLR applicant, who owned an IRA, requested a waiver of the Internal Revenue Code’s 60-day rollover requirement.  (As a general rule, a participant who receives a qualified plan distribution via a check made payable to him or her has 60 days to roll that amount over to another retirement arrangement if he or she wishes to do so.) The applicant here failed to comply with that 60-day requirement because he did not receive certain paperwork from his IRA’s custodian in time.

Although the custodian timely sent that paperwork to the applicant, the custodian sent it to his former address. That was because the applicant did not notify the custodian about his new address. Fortunately for the applicant, the IRS granted his waiver request. The IRS reasoned that he was unable to accomplish his rollover within the 60-day period solely because he failed to receive pertinent paperwork by that date.

This raises an important consideration for retirement plan sponsors: whether or not they maintain current addresses of former employees who still have a vested balance in the plan sponsor’s retirement plan. Plan sponsors should maintain those individuals’ current addresses for several reasons, including the following:

  • The Department of Labor (the “DOL”) takes the position is that plan fiduciaries have a legal obligation to try to maintain those individuals’ current addresses;
  • If a plan sponsor does not have one or more of those individuals’ current address, then it must follow IRS and DOL guidance regarding steps to take to try to locate any of those individuals. This can involve the plan sponsor expending a significant amount of time and money. 
  • Many plans allow former employees’ plan accounts to be distributed to them after their employment termination, without their consent, if their vested account balance does not exceed $5,000.  Lacking a current address, a plan sponsor might not be able to effectuate such a distribution. That can mean continuing to pay fees to maintain the participant’s small account and continuing to count that participant for purposes of determining if the plan requires an annual audit by a CPA.