Uncashed checks can be an administrative headache for retirement plans, potentially raising fiduciary and compliance concerns. Why?
When cutting a check to a participant for payment of benefits under a qualified retirement plan, the plan administrator withholds and remits federal (and sometimes state) income taxes to the Treasury Department and reports the distribution as income to the participant on IRS Form 1099-R (unless the distribution is less than $10). If the check is not cashed and becomes stale, uncertainty can arise regarding how to handle the stale check and the replacement check.
Revenue Ruling 2025-15
In 2019, the IRS issued Revenue Ruling 2019-19, clarifying that retirement benefits are subject to tax, reporting, and withholding in the year the check is issued, even if the check remains uncashed or is cashed in a later year. On July 16, 2025, the IRS issued Revenue Ruling 2025-15, providing further guidance on uncashed, stale, and reissued checks. While not addressing all scenarios, the guidance clarifies that if the reissued check (Check 2) is in the same amount as (or is less than) the uncashed original check (Check 1), no withholding or reporting is required upon issuance of Check 2. However, if the amount of Check 2 is greater than Check 1, for example where earnings accrued while the benefit remained in the plan, the additional amount accrued is subject to withholding and reporting on Form 1099-R (if the additional amount is $10 or more).
Revenue Ruling 2025-15 also clarifies that the plan is not entitled to a refund or adjustment of any tax withheld when Check 1 remains uncashed (and is later canceled) because the correct amount of tax — and not more than the correct amount — was withheld and remitted under the applicable withholding rules.
Why Is It Important to Monitor Uncashed Checks?
Uncashed distribution checks are a growing problem for plan administrators and can raise fiduciary, reporting, and compliance issues. Several key reasons to monitor uncashed checks include:
- Ongoing Fiduciary Oversight: Uncashed distribution checks represent a fiduciary liability, since the funds are considered plan assets until the check is cashed.
- Increased Department of Labor (DOL) Enforcement Activity: During routine audits, the DOL’s regional offices frequently inquire about the measures plan sponsors have taken to locate and communicate with missing participants. To help plan sponsors with this process, the DOL has issued guidance to assist plan fiduciaries in locating missing or nonresponsive participants and distributing benefits to them.
- Withholding and Reporting: When a plan administrator issues a distribution check to a former employee, federal income tax (and sometimes state tax) must be withheld and remitted to the Treasury Department and the plan administrator must report the distribution to the IRS on Form 1099-R (there is an exception for distributions less than $10). When a check is issued but is never cashed, the check becomes stale and can lead to uncertainty about whether to withhold federal income tax and how to report the distribution when the replacement check is issued.
With an uptick in DOL enforcement activity regarding stale checks, the new guidance is a good reminder for plan sponsors and plan administrators to review their policies and procedures for uncashed checks and locating missing participants.
