Missing Participants and RMDs

Welcome to the Retirement Learning Center’s (RLC’s) Case of the Week. Our ERISA consultants regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, Social Security and Medicare. This is where we highlight the most relevant topics affecting your business. A recent call with a financial advisor in Nevada is representative of a common question on required minimum distributions (RMDs) and missing participants.

"My client has several former employees who still have account balances in the company’s 401(k) plan. A few of these individuals have required minimum distributions (RMDs) due—but my client cannot locate them. Is the plan in jeopardy of disqualification if my client cannot distribute the RMDs?"

Highlights of the discussion

A 401(k) plan's failure to distribute an RMD when due is considered an operational failure [IRC §401(a)(9) and Revenue Procedure 2021-30], which could jeopardize the plans tax qualified status if not corrected. In cases involving RMD-eligible participants or beneficiaries who cannot be located, there is special guidance from the Employee Plans Examinations Department in the form of a field directive (the memo) to all exam agents.

The memo directs IRS examiners not to challenge a qualified plan for its failure to pay an RMD to a missing participant or beneficiary if the plan has taken the following measures to locate the missing individuals:

Searched plan and related plan, sponsor, and publicly available records or directories for alternative contact information;

1. Used any of these search methods:

2. A commercial locator service;

3. A credit reporting agency; or

4. A proprietary internet search tool for locating individuals; and

5. Attempted contact via the U. S. Postal Service certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers).

Note: The memo provides guidance for IRS plan examiners but does not address the application of any other qualification requirements or other applicable law including Title 1 of ERISA. The Department of Labor has issued best practices for locating missing participants.