Uncashed Pension Checks

In 2019, the Internal Revenue Service (IRS) issued much needed guidance on how retirement plans should address the issue of uncashed pension checks.

Revenue Ruling 2019-19 states that a recipient’s failure to cash their distribution check neither changes the plan’s obligation to withhold income tax or report the distribution on the Form 1099-R for the year of distribution. These rulings are based on existing law, particularly the Doctrine of Constructive Receipt that is codified at Internal Revenue Code Section 451. The IRS already ruled on a similar factual situation in Revenue Ruling 68-126. In that ruling, a taxpayer could have received a retirement benefit by appearing in person in one taxable year, but instead waited for the check to arrive in the mail in the following taxable year. The IRS held that “the income is constructively received in the year preceding the year of the actual receipt,” and that the retiree therefore had to include the amount of the check in income in the earlier year.

A plan must file Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for each person to whom the plan has made a designated distribution or are treated as having made a distribution of $10 or more. To the participant, the Form 1099-R represents income received in the year reported.

Here are three scenarios plan administrators commonly experience, and the proper course of action regarding Form 1099-R reporting:

• If a distribution check is issued and then subsequently voided and reissued in the same year, the amount reported on the Form 1099-R should be the amount of the reissued check.
• If a distribution check is issued in one year, but voided and reissued in a subsequent year, this would be a 1099-R reportable distribution in the year of original distribution and is also reportable as income on the recipients’ personal tax return for that earlier year. The reissued check in the subsequent year does not constitute a distribution by the Plan. Rather, it would be an administrative transaction to reissue the voided check. Applying the doctrine of constructive receipt, the check was made available in the original year of distribution. (Often, an original distribution check is voided because it was sent to an incorrect address. The plan has the responsibility to provide a sufficient process for ensuring correct distribution information for recipients. However, it is ultimately the recipient’s responsibility to communicate the addressed changes.)
• If a distribution check is issued and subsequently voided in the same year, but reissued in the subsequent year, the distribution should be reported on the Form 1099-R for the year the check was reissued. As the original check was issued and voided in the same year, there was no income to the participant, and there would be no Form 1099-R requirement for the year the check was both issued and voided.

If you have questions about uncashed pension checks and Form 1099-R reporting requirements, contact our experts.