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Lost/Missing Participant


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Ongoing multiemployer defined benefit plan (so not terminating).

A Participant vested in a benefit over 30 years ago, then left and was never heard from again. Assume for the sake of argument that the Plan's administrator did what it was supposed to do in trying to locate him, but to no avail.

Well, the guy just surfaced and is applying for his benefit.

Per the terms of the Plan, benefits commence 60 days after the close of the Plan Year in which the participant turns 64 unless the Participant elected otherwise. Obviously, that did not happen. So, for this guy, his benefit should have commenced in 1998.

He turned 70 1/2 in about 2003 or so.

So, my question. I'm assuming that we now pay him his benefit retroactive to 1998 when his benefit should have commenced. But, do we need to do anything regarding the RMD that was missed? Or will that be encompassed by the fact that we're paying it back to when he was 64?

I know there are big tax consequences to the Participant if he doesn't start the RMD when he's supposed to. I'm considering going through EPCRS (just considering it, not definitely doing it).

Your thoughts? Anyone go through this?

Thanks.

You cannot bash in the head of an American citizen without written permission from the State Department.

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First thought is to ask fund counsel. They, along with the Trustees, should be the ones to decide how to handle this. Obviously the 70 1/2 is a problem for the participant, but I don't really think it is the fund's problem. Most likely, nothing bad will happen, but if so, that is on the participant.

The plan document should dictate what is to be done, but there are typically two possibilities. First, you pay him retroactively to 1998 - maybe with interest, maybe without. (I would argue with interest.) Second, you determine the actuarially increased monthly benefit commencing 12/1/15 (or some other future date).

I think an actuarial increase would be cleaner. You know your options and his current spouse and you present the options like any other late retirement.

If you use the retro approach you might need to be concerned with his spouse as of 1998. What options would have have had available at that time? The document must contain retroactive annuity payment provisions, but some attorneys take the approach that the plan had no authority to suspend the payments for a terminated member, therefore the retro payment is the only option.

At the very least some adjustment needs to be made to the benefit. Some attorneys will argue the participant had an obligation to request the payment and not doing so eliminated the sponsors obligation to adjust the payment, but I believe the IRS has been clear that this isn't true.

Bottom line, there is probably no perfect answer, so do something reasonable that you can defend later if necessary. You can't really do anything about the 70 1/2 problem, so I wouldn't give it much thought.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Thanks all. AndyH, to your point, that's something we thought of. However, the Plan stated that the only way to defer commencement was through written instructions. Later, the Plan was changed to say that if you didn't take the benefit right away, that was a deemed election to defer. But fund counsel didn't think that was applicable considering the timing of when the person went inactive, hit retirement age, etc.

Thanks again.

You cannot bash in the head of an American citizen without written permission from the State Department.

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