Social Security numbers (SSNs) in employee benefit plans (EBP) are a topic of growing concern for benefit plan administrators. EBPs are faced with SSNs that belong to individuals who are deceased, that belong to other individuals, and some that are invalid altogether. In the September 11, 2014 session on Retirement Hot Topics, Internal Revenue Service (IRS) representatives indicated that with over 200 million SSNs issued, approximately 40 million of those numbers are erroneously connected to more than one person.
One significant challenge regarding inaccurate SSNs is the difficulty in distributing benefits. For example, distributions to a participant with an invalid SSN may not be processed properly; therefore, participants who are required to take minimum distributions may be subject to a penalty of 50% if they are unable to withdraw required amounts by the applicable deadline. Also, balances cannot be rolled over into another account until an accurate SSN is obtained. This creates complications for plans with cash-out clauses as benefit plan administrators are unable to force participants with small balances out until they can obtain valid SSNs for those participants.
Employers should use caution to ensure accuracy of SSNs. In the event that errors are noted, the Social Security Administration office has a Social Security number verification service available to employers to make corrections. This service is available via mail, telephone, and online at http://www.ssa.gov/employer/ssnv.htm. The online tool allows for two different verification methods:
Steve Beasy, CPA
Phone: 574.264.2247, x333