457(b) distribution failure

[EPCRSGuru]

A participant (a non-US citizen) in a 457(b) plan sponsored by a non-profit took a leave of absence and returned to his home country. His LOA later expired and his employment was terminated. This triggered a letter informing him of his distribution options under the 457 plan, including the notice that distribution would automatically occur if he did not respond in a timely manner.

Unfortunately, the letter was sent to his US address, as was the distribution check and W-2 form produced when he did not respond. The check was never cashed and was returned as undeliverable, but per legal advice his account balance was never restored and the W-2 never canceled.

Now it is more than 4 years later and the employee has returned to the US and has been rehired by the employer maintaining the 457. Now the question is, what happened to his 457 balance? Does the check get reissued and the participant advised to amend (or file) his tax return for the year in question? (It is not clear whether the participant had any US income for that year that would otherwise require him to file a US return.) This appears to be the legal solution but not necessarily the one the participant would like to hear. Are there any loopholes that would allow the employer to treat the situation as though a timely election to defer had been made? Is anyone surprised that the IRS has not already questioned the situation considering that there is a W-2 out there without an associated tax return? Has anyone ever experienced anything similar?

All thoughts appreciated.