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IRS retires old-fashioned letter-forwarding program

by on
in Office Management,Payroll Management

If you’ve ever been unable to locate former employees who were owed 401(k) plan assets or final paychecks, you’ve probably used the IRS’ letter-forwarding program to try to contact them. No longer. The IRS announced this fall that it will no longer routinely assist in locating missing taxpayers who may be entitled to retirement plan payments or other payments. (Rev. Proc. 2012-35, IRB 2012-37)

Nevertheless, you do have options to track down missing employees.

Humanitarian purposes only. The IRS says that it will still forward letters to missing individuals if there’s no other way to communicate with them and it’s for humane purposes, such as notifying individuals of someone’s serious illness, imminent death, the death of a close relative, etc.

Instead of the IRS’ letter-forwarding service, you can use alternative missing persons’ locators, some of which are Internet-based. You can always fall back on the tried-and-true method of mailing a letter via certified mail. You can also check other plan documents, such as a health plan. Or, for $25, you can use the Social Security Administration’s letter-forwarding service.

What to do now. It’s clear that you just can’t return a former employee’s retirement assets or final paycheck to the company’s general accounts. Under long-standing IRS rules, plans that require distributions to departing employees who have 401(k) balances of less than $5,000 must roll over those balances directly into plan-designated IRAs, if employees didn’t provide distribution instructions, their accrued balances exceed $1,000 and they can’t be located.

Plan-initiated rollovers apply to all mandatory distributions exceeding $1,000, including distributions to missing, departed employees whose ­balances exceed $5,000, which normally require their consent prior to distribution.

Plans are limited to IRAs sold by FDIC-insured banks, federally insured credit unions, insurance companies that register products with state guarantee associations or federally registered investment companies. IRAs must preserve principal, and consistent with liquidity, provide a reasonable rate of return (although the rate of return need not be guaranteed). OK: CDs, savings accounts, money market accounts and mutual funds.

UNCLAIMED PAYCHECKS: You must retain checks that can’t be delivered to departed employees as unclaimed wages. Most states consider uncashed checks to be abandoned after one year. Once a check is considered abandoned property, you must file a report and remit it to a state office, usually the state treasurer. The most common reporting period is Nov. 30 for unclaimed wages outstanding as of the preceding June 30. But states can have different reporting periods. Tip: Consult your state treasurer’s website for what to do with abandoned paychecks.

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