"The Pension Specialists" Blog

IRS Repeals Use of Letter-Forwarding Program for IRAs and Pension Plan

In Rev. Proc. 2012-35 the IRS has chosen to revise Rev. Proc. 94-22 by removing from the purpose section letters being sent by IRA custodians and pension plan trustees to "lost" individuals. The IRS cites the internet and various relocator resources as justifying the discontinuance of its IRA/pension letter forwarding program. The technical change is - returning funds to a person no longer falls within the definition of a "humane" action and the IRS has changed the definition accordingly. That is, the IRS will not forward letters if the sole purpose of the letter is to contact a “missing person” so he or she may be paid IRA or pension funds. The IRS seems to have a strange definition of what it means to be humane in a hard economy.

IRA custodians sometimes lose contact with IRA accountholders or inheriting beneficiaries. Trustees of pension plan experience similar problems with former employees. In 1994 the IRS established a procedure where it would forward a letter to an individual on behalf of an IRA custodian or a plan trustee. In essence, the letter from the financial institution to the individual informed him or her to contact the institution as he or she had IRA funds or pension funds at the institution and the institution wished to pay these funds to the individual.

It appears that this change is being made to lower expenses. As an alternative, the IRS could have increased its fees. The IRS will process letters requesting letter-forwarding services under Rev Proc. 94-22 if postmarked by August 30, 2012. If postmarked on and after August 31, 2012, then the IRS will use the procedures set forth in Rev. Proc. 2012-35.

On August 31, 2012, CWF was sent an email from the IRS under its IRS Guidewire program wherein tax practitioners are sent IRS guidance in advance of its publication in the Internal Revenue Bulletin. Note that CWF was notified on August 31, the day after the August 30 deadline. It is unfortunate that this letter forwarding program has been discontinued. It was one tool which allowed an IRA custodian or pension plan trustees to find some “unlocated persons” and to pay them their account balances.