RMD Scenario and Process Question

[Guest mmaggs]

Quick scenario involving RMDs and payouts. Please let me know your thoughts.

Our recordkeeper sends out notifications to termed employees to take their funds at age 70.5 to be in tax compliance for RMD purposes. It notifies the participant about RMDs and to take their balance and instructs them to call. Our plan document requires full payout at that point, not just ongoing RMDs.

If the participant does not call, these funds can potentially sit there and the participant can have tax consequences.

For a plan that requires full payouts or RMD with a rollover of the remaining balance, what is a good procedure to capture people and have them paid out? If they have more than 5k in the account, what can anything be done to force them out to keep the plan in compliance?

[BG5150]

Actually, the plan (probably) says the RMD must be made. It jeopardizes the qualification of the plan if the Trustees do not make the RMDs.

We wait until the last minute and cut checks with 10% withholding.

Those over $5k cannot be forced out (other than an RMD, IMHO) unless the plan is terminating.

[QDROphile]

Those with accounts over $5000 can be required to take a distribution of the entire account unless keeping the account has become a protected benefit. Plan terms rule, but they have to be drafted carefully and consistently. You handle it just like any mnadatory distribtuion. Figure out the timing (e.g minimum 30 days for the rollver notice) and what you will do and develop appropriate appropriate dsiclosures, and then adopt a policy and follow it. Start early enoght that the distribution will be made by the RMD deadline. You will have different considerations depending on if you are sure you have contacrt with the individual or not.

If the plan has ever been a prototype, it is likely that maintaining the account is a protected benefit, at least with respect to amounts accrued before plan terms changed to require full distribution.