RMD Recipient Will Not Respond to RMD Notices

[CAR]

A terminated plan participant must receive an RMD from the 401k plan by April 1, 2016. Each year the plan has mailed the terminated plan participant distribution paperwork. Because we were aware that the terminated participant must receive a minimum required distribution, we mailed the RMD notice to the participant Certified/Return Receipt with Address Correction Requested. We received notice from the post office that the participant had moved to another state and our RMD notice package has been returned to us because the participant would not sign for the package after two delivery attempts. We are concerned about our liability if we just go ahead and issue the RMD payment from the plan to the participant and someone other than the participant cashes it. Are there any other precautions that we can take before we issue the check to her at her new address? We have researched her name online and all the online people search services still show her old address. Any recommendations?

[rcline46]

RMDs are required, not an option. Send a check with the 10%taxes deducted. Forget the package and signing now that you know her address, send the distribution, request copy of check after being cashed to see if it is her signature.

[Peter Gulia]

If the risk you fear is significant, the payer might get its lawyer's advice about how much or how little responsibility the payer's bank has, and how much responsibility the payer has.

[mbozek]

How do you know that is the permanent address of the participant? If the participant will not accept mail that does not sound like an address you want to send retirement checks to indefinitely. I would apply the forfeiture at MRD provision in the plan until the participant requests the benefits to prevent the checks from being forged.

[Bird]

Sounds like a stubborn/recalcitrant participant. I'd mail the check, with a note that she'll get a 1099-R showing it as a taxable distribution, whether she cashes it or not.

[david rigby]

Perhaps I misunderstand the discussion about address. Do you have a valid address? If the address is know to be invalid, it seems fruitless to mail anything.

[CAR]

Thank you all very much for your responses. I received the corrected address through the USPS by requesting an address correction on the package when it was sent Certified/Return Receipt. Several years ago this participant was terminated by the company with cause and she left all of her personal belongings at the company and never returned to claim them. Over 5 years have passed now and she has never responded to any of the distribution packages mailed or hand delivered to her employer one year. She has since left the known other employer and her distribution paperwork/RMD Notice has been returned as unsigned after two attempts by the USPS. Though her account value is only $20,000, the company is concerned 1) of the potential consequences they may suffer if someone other than her signs the RMD check(s) or 2) if she refuses to cash the check and it is then credited back to her plan account after 6 months.

[mbozek]

If check is stolen and cashed by an embezzler the bank cashing the check is liable to the payor bank. Eventually the plan would be reimbursed for the payment and would issue a new check.

If the participant refuses to cash the check she will be taxed on the distribution because she has actual receipt of the check. Plan can issue a new check if the old check is stale, e.g. more than 6 months old.

[My 2 cents]

If check is stolen and cashed by an embezzler the bank cashing the check is liable to he payor bank. Eventually the plan would be reimbursed for the payment and would issue a new check.

If the participant refuses to cash the check she will be taxed on the distribution because she has actual receipt of the check. Plan can issue a new check if the old check is stale, e.g. more than 6 months old.

If the check is mailed, whether the participant deigns to receive it or not, wouldn't the plan issue a 1099-R, so the participant would be taxed in any event?

[mbozek]

If check is cashed by unauthorized person participant claims a casualty loss which offsets taxation reported on 1099R. See IRS pub 547 P 3.

[My 2 cents]

If check is cashed by unauthorized person participant claims a casualty loss which offsets taxation reported on 1099R. See IRS pub 547 P 3.

But the plan, having sent out payment, would issue a 1099-R and then the participant would, as a separate action, have to claim a casualty loss offsetting the taxation as reported by the plan. Right? So the plan would issue a 1099-R in any event, forcing the participant to take some sort of action (either pay the taxes or pursue a casualty loss claim).

[mbozek]

See Pub 547 for specifics.1099R Income is reported on line 16a of the 1040. Casualty loss is deducted on tax return by filing Schedule A.