RMD's - what if employer didnt pay out in time?

[Guest fcdeacy]

If an employer fails to pay out an employee before the designated cutoff date (April 1st after the year in which they attain age 70 1/2) what penalties if any are there for the employer and employee?

How are these penalties calculated.

When and how do you report these errors/ommissions?

Thanks,

Fred

[SoCalActuary]

First situation: Employer is one person company and the trustee

Generally, declare the income as if paid timely, make up the distribution as quickly as possible, and pray for no audit.

Second situation: Employee is not a party to control of plan (i.e., not the plan sponsor, not the plan administrator, not the trustee)

The plan failed to follow its own terms, a disqualifying event. Pay the distribution ASAP, self correct, and if at all possible, see that the payment due by April 1 gets into taxable income in the same year. The participant should have no penalty on this, since the participant presumably had no control over the distribution. The participant gets taxed on the money when received. Remember, in a DB plan, that you can also make up to 12 months of retroactive payments if the required form is an annuity.

One more concern: If the participant was given election forms timely, but failed to return them, then the participant might have some liability for causing the delay. But not likely, since the plan administrator could force the distribution, with default 10% income tax withholding on the plan's normal form (J&S for pension, MDIB for PS).

[Blinky the 3-eyed Fish]

The advice, "pray for no audit" could be applied to any situation a plan finds itself in. It's not advice I would formally give, however.

Fcdeacy, I know Rev. Proc. 2003-44 has some discussion on missed MRD's, so you might want to thumb through it.