Required Minimum Distributions and Missing Plan Participants

  • a search for alternate contact information (address, telephone, or email) contained by the retirement plan, a related plan, the plan sponsor, and publicly-available records or directories;
  • use of a commercial locator service, a credit reporting agency, or a proprietary internet search tool for locating individuals; and
  • the mailing of a contact letter sent by U.S. Postal Service via certified mail to the last known address and to any other alternate address that is found.

Actions for Plan Sponsors[4]

First, plan sponsors should promptly review their retirement plan records to determine if there are terminated deferred vested participants and/or beneficiaries of deceased participants who have reached their RMD commencement dates but have not commenced their RMDs. Plan sponsors should then verify if they have good contact information for affected participants and beneficiaries. If the plan does not have good contact information for an individual, the plan sponsor should commence a diligent search using the IRS procedures described above. The plan sponsor should document in writing that all procedures in the IRS field directive have been followed and designate participants who are officially “missing” as defined in the directive.

Second, plan sponsors must correct RMD commencement failures. A plan sponsor may be able to self-correct the plan’s failure to make timely RMDs under the IRS Employee Plans Compliance Resolution System (“EPCRS”). The plan must notify affected plan participants and beneficiaries of the failure, commence RMDs, and pay out all outstanding RMDs (plus earnings or an interest payment based on the plan’s actuarial equivalence factors). Full correction is required. If a plan sponsor self-corrects under EPCRS, the plan sponsor may avoid plan disqualification. However, affected participants and beneficiaries will be subject to the 50% excise tax on late RMDs.

A plan sponsor may also correct RMD failures with IRS approval using the voluntary compliance program under EPCRS. If a plan sponsor uses the voluntary correction program, it may avoid plan disqualification and request a waiver of the 50% excise tax on affected plan participants and beneficiaries.

If a plan sponsor does not correct under the self-correction or voluntary correction programs, and RMD commencement failures are discovered by the IRS on audit, the plan sponsor may face plan disqualification. To avoid disqualification, the plan sponsor may be required to pay substantial penalties under the EPCRS audit cap program.[5]

Third, plan sponsors should incorporate the IRS guidelines for “missing participants” into their missing participant search procedures. They should also review DOL guidance on missing participants described in our 2021 blog posts (linked above) and take action to ensure participant databases, communications, and searches align with that guidance. Having good procedures in place will prevent future RMD failures.

Please contact a member of our Employee Benefits & Executive Compensation Group if you have any questions regarding the IRS field directive on RMDs or missing participant procedures.

[1] The field directive is incorporated into Part 4, Examining Process, Ch. 71, Employee Plans Examination of Returns, Section, Examination Objectives and Development of Issues, subsection (15), Distributions.

[2] For defined contribution plans, effective for distributions with respect to participants who die after December 31, 2019, ten years is substituted for five years, except in the case of a beneficiary who is not a designated beneficiary.

[3] For defined contribution plans, effective for distributions with respect to participants who die after December 31, 2019, the “payment over the life of the designated beneficiary” rule is available only to designated beneficiaries who are eligible designated beneficiaries. An “eligible designated beneficiary” means (i) a surviving spouse, (ii) a minor child, (iii) a disabled individual, (iv) a chronically ill individual, or (v) an individual who is not more than ten years younger than the participant.

[4] The duties described in this section may be delegated to the retirement plan administrator.

[5] The number of retired or separated participants entitled to future benefits must be reported on Form 5500. A large number of participants in this category may trigger an IRS and/or a DOL audit.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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