According to Linda Hunt, founder of the financial management firm SumSolutions LLC, if a W-2 is returned to you as undeliverable you should not open it, but rather retain it in your files in the original envelope. "When and if the former employee inquires as to the whereabouts of their W-2, you should make a copy of the returned envelope and re-mail it in a larger envelope," says Hunt. "Do not open it and place the W-2 in another envelope."
Why? By re-mailing the original envelope, you create an audit trail of compliance with IRS regulations requiring that W-2s be postmarked by January 31. If you throw away the original envelope, you will have no proof that you actually mailed the W-2 by that date. The same holds true for 1099 forms.
Source: "Preparing Your IRS Forms 1099 and W-2"