The Importance of Maintaining Valid Social Security Numbers

According to a study done by ID Analytics, Inc., over 40 million Social Security Numbers (SSNs) are associated with more than one person. Of the 280 million SSNs they studied, that means one in every seven SSNs are being used for the wrong person. While the first reason that comes to mind might be identity theft or fraud, the majority of these errors are due to data entry.

For an employer, that means the data used for anything from employee benefits to wage reporting more than likely contains errors in the one number considered to be a unique identifier.

For employers maintaining a qualified retirement plan, an invalid SSN could keep employees from receiving their retirement benefit. Valid SSNs (or other individual tax identification numbers) are required for distributing benefits according to IRS rules. Furthermore, banks and other financial institutions will not allow a distribution if they determine a participant’s SSN is invalid, and in the case of a 401(k) plan, they may not pay contributions on the participant’s behalf.

Invalid SSNs are also a concern for annual wage reporting for Social Security. W-2 wage reports require accurate SSN and name information to determine Social Security eligibility and benefit amounts for employees. Employees will not receive credit for earnings tied to an invalid or mismatched SSN. When a W-2 includes an invalid SSN or a mismatch between SSN and name, the Social Security Administration holds the W-2 in what is called the Earnings Suspense File (ESF). The W-2’s in the ESF are held until the SSN and/or name on the W-2 is fixed and credit can be provided to the correct person.

As of September 2015, the Office of the Inspector General reported that the ESF contains 333 million W-2’s totaling $1.2 trillion in uncredited wages. Over 95% of these W-2’s are held due to a mismatch in SSN and name.

In an effort to reduce the size of the ESF, the Social Security Administration provides an online verification system that validates SSN for current and former employees. The site (link provided below) includes information on how to verify employee data, as well as what to do if an employee’s information is incorrect. Even though the system is meant to verify SSN for W-2 purposes, it is also a useful tool for retirement plan administration.

Social Security Administration SSN Verification:

IRS Retirement Plan Informational Website:

Status of the Social Security Administration’s Earnings Suspense File:

IRS Hot Topics – Invalid SSN

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