RMD Participant Authorization

[JKW]

Can a TPA require the participant sign a distribution form to process an RMD or is the plan sponsor required to pay them out automatically even without a response from the participant.

[My 2 cents]

It is my understanding that if it is an RMD, it must be paid.  To do otherwise would most likely violate the plan and IRC's minimum distribution rules, resulting in an excise tax on the participant and possible disqualification of the plan.

Ideally, the participant would sign off on the way that the RMD will be paid (i.e., if it is a defined benefit plan and the benefit is to be paid as a periodic annuity, the participant would elect the form of the annuity, while if the plan permits lump sum payouts, the participant might elect to be paid a lump sum).  The plan is likely (if it is a defined benefit plan) to contain language saying that if payments are to be made and the participant does not elect a different form, it will be paid in the form of a QJSA.  The TPA should try to get the participant to sign a distribution form, but if the participant won't do so, the payments should be made under the default option anyway.  The "R" in RMD stands for required.

[JKW]

Thanks - that's is pretty much what I have been reading so confirms my thought. Thanks for taking the time to write.

 

I have one follow up question. If the RMD is under $10 ( the plan hadn't processed the next set of cash force outs) - and an RMD was never sent out b/c the participant never responded. Is there a de minimus rule for RMD's?

[Lou S.]

There is no de minimus rule.

If the balance is under $1,000 you can send them the whole account in cash (less withholding) but need to inform them of the portion that is RMD and not eligible for rollover.

If the balance is under $5000, you need to send them their RMD before cashing out the remaining to IRA (which will now have it's own RMD next year).

 

[ESOP Guy]

Yup, no de minimus.  Years ago I had a client who had a person whose RMD was under $1 every year.  They simply had a no force out policy so the check was sent every year.  Many years it went uncashed but some years it was. 

[JKW]

Thanks all!