Calculate RMD to Missing Participant Later Found

[Atila]

My client has found several participants who were previously considered “lost”. Each of these participants is well past age 70 ½ and each has not taken an RMD. In accordance with the terms of the plan, some of these lost participants’ benefits were forfeited.

My client has asked whether this defined benefit plan must pay these newly found participants a benefit that is actuarially adjusted for the period beyond age 70 ½. In some cases the initial benefit was around $100/mo and now with the actuarial adjustments, the benefit will be a lump sum of over $500,000 (the plan is terminating). In some situations the participant is dead, and the surviving spouse or beneficiaries will receive the benefit. In each case, the participant was searched for and determined “lost” when the participant reached age 70 ½.

The client's actuary is suggesting that the benefit should only be adjusted to age 70 ½. Has anyone else encountered a similar situation?

It is my understanding that the participant must receive 100% of the actuarially adjusted benefit to the current date (not age 70 ½).

[ETA Consulting LLC]

You have 6 in one hand and one half dozen in the other. You can easily suggest that a participant receive the adjustment through the current date, but that would fail to consider the fact that the participant was not available to receive the distribution at age 70 1/2. So, on what authority would they argue to be entitled to an increase through the current date when the delay was not attributable to any wrong-doing on the sponsors part.

I don't believe there is a clear precedent, but could see how the actuary would reasonably conclude that the calculation be made to the point they attempted to pay the participant, but were unable to due to the participant not being available.

The least you should do is make immediate payment for what you both agree on (the calculation through age 70 1/2) while you debate the necessity to pay through the current date.

Good Luck!

[Calavera]

1. I am not sure if it is allowed to forfeit any benefits under a DB plan

2. What plan document says about commencement?

• Has to commence at NRD
• Has to commence at NRD but may defer, however not past RBD
• Commence at later of NRD or actual request for benefit
• etc.

3. If your understanding (AE to the current date) is coming up from reading 401(a)(9)©(iii), I think this section is applicable only for the retirement from active employment.

4. Assuming all of them terminated before 70 1/2, and commencement is not allowed later then RBD date, I would actuarially increase it to RBD, and then pay them missing payments from RBD with reasonable interest.

As it was mentioned above, there is no clear guidance on this issue.

[mbozek]

reg 1.411(a)-4(b)(6) permits forfeiture of a vested benefit if the participant cannot be found provided that the benefit is reinstated if a claim is made by the participant or beneficiary. There is no further explanation. Reinstatement of the benefit means that the vested benefit must be paid under the terms of the plan which would include all actuarial adjustments provided under the plan.