Retirement plan administrators need to look for missing participants

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Retirement plan administrators often run into this problem: a participant has reached his or her required beginning date — the date on which distributions must commence under the required minimum distribution (RMD) rules of Code Section 401(a)(9) — and the participant cannot be located.

A recent IRS Field Memorandum provides guidance to IRS examiners that plan administrators should find helpful. The October 19 memorandum states that field examiners “shall not challenge” a qualified plan as failing to satisfy the RMD rules in situations where a distribution to a participant or beneficiary has not been made and the plan has:

1. searched plan, related plan, plan sponsor, and publicly available records or directories for alternative contact information;

2. used any of the following search methods: a commercial locator service, a credit reporting agency, or a proprietary intent search tool for locating individuals; and

3. attempted to make contact through United States Postal Service certified mail to the last known mailing address and through appropriate means for any address or contact information (including e-mail addresses and telephone numbers).

A plan administrator facing the RMD and missing participant (or beneficiary) problem should think “1, 2, 3” and act accordingly. Why? Because the guidance also states that an examiner “may challenge” a plan for violating the RMD rules if it has not followed these steps.

A prudent administrator should consider formalizing these steps. They should conduct periodic audits for missing participants who may have reached their required beginning date, and remain on the lookout for uncashed checks and other telltale signs of a missing participant.

As always, the Field Memorandum does not have the force of law and it is not subject to use, citation, or reliance to avoid penalties. But administrators and plan sponsors should take advantage of this practical guidance — or risk ignoring it at their peril.

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Retirement benefits Retirement planning Law and regulation Pension reform Public pensions