The Internal Revenue Service (“IRS”) has made it easier on plan sponsors processing required minimum distributions (“RMD”) for retirement plans with “missing participants”. These missing participants make it difficult to distribute the RMD timely and therefore jeopardize the qualified status of the plan.
In an effort to address this issue, the IRS has directed IRS examiners not to challenge the qualified status of plans that fail to distribute the RMD, if the plan sponsor has made a good faith effort to locate the missing participant. In order to make a good faith effort, plan sponsors are required to use publicly available records, a commercial locator service such as a credit reporting agency, and attempt to contact missing participants or beneficiaries using certified mail at the last known address or any address available such as an email or telephone number.
The good news is that a “missing participant” includes not only participants and beneficiaries that cannot be located, but also includes those participants or beneficiaries for whom the plan has a valid address, but the person refused to accept or is unresponsive to any communications.
While the IRS has given some guidance on what to do in this situation, the Department of Labor (“DOL”) has not. Keep in mind that missing participants are also a fiduciary issue. The DOL has listed some minimum steps that must be used to locate a missing participant, but has also indicated that further steps may be necessary, using factors such as the size of the participant’s account balance and the cost of these additional methods.
If you have any questions regarding of the handling of RMDs for missing participants under this new guidance, please contact your Nyhart consultant.