The withholding issue with respect to replacement pension checks

Most pension plan administrators must deal with uncashed checks whether because of an inaccurate address or a failure of the recipient to cash the check. The administrator will have withheld income tax from the first check. Once the withholding takes place, neither the plan administrator nor the recipient can recover that withholding from the IRS.

Of course, the taxpayer (recipient) is credited with the amount withheld, which can be used to offset total tax liabilities.

The IRS guidance on replacement pension checks

IRS Revenue Ruling 2025-15 addresses the specific fact situation where the first check is uncashed and the plan administrator issues a replacement check. The guidance holds that the administrator is not required to withhold any amount from the second check — unless the second check is greater than the first check.

If the second check is for a greater amount, withholding is only required on the excess amount.

The full amount of the first distribution must be reported on Form 1099-R for the year during which the check was issued, even if the check was not cashed or was returned. The 1099-R must also show the amount withheld.

If the second check does not exceed the original amount, no Form 1099-R should be provided. If it does exceed the original check, then only the excess (and any withholding) must be reported for the year the second check is distributed.

Implications for pension plan sponsors

Most pension plan administrators assumed this result, but it is useful to have it formally stated.

Uncashed checks and the general problem of missing participants have troubled plan administrators for some time. While the clarification in the guidance is welcome, there remains much for the Departments of the Treasury and Labor to clarify.