RMD and EPCRS

[AAS2]

A plan will file a voluntary correction for late RMDs. Some of the late RMDs are due to lost participants.  Is the inability to make a payment due to inability to find a participant (despite multiple and varied efforts) a plan error? 

[ESOP Guy]

I have never seen a plan get in trouble for failing to pay an RMD to someone it can show they were diligent in trying find.  I would add in most plan documents it tells you what to do with a balance of a person who is lost and you have made a diligent search for them.  So following that part of the document also protects the plan.  In many cases you can forfeit the balance which means there is no balance to pay an RMD from. 

[CuseFan]

As an aside, note that DOL has an initiative to make sure that plans are commencing benefits timely - i.e., that deferred vesteds are given opportunity to commence at normal retirement date, so waiting to try to locate missing participants when their RBD rolls around may not fly as a valid excuse in the future. This seems more of a DBP issue, but paying out accounts at NRD unless the participant defers is also a DCP issue.

Personal opinion, since all ERISA plans are required to distribute annual notices of some sort to ALL participants, there is no reason that missing participants cannot be identified in a timely fashion and then search methods undertaken so that benefits can be paid when due. 

 

[AAS2]

This is a db plan and we really have participants who disappear and cannot be found despite diligent efforts.  

I have another question.

If participants do not elect form of distribution, may plan pay out in default fashion and then change the form and of payout if participant later makes an election in the proper form?  Individual payment amounts would be adjusted accordingly.

[CuseFan]

Depending on plan provisions you must commence payments in the normal form if participant fails to make election when benefits are payable - either (and most likely) at normal retirement or (if plan deems failure to elect commencement to be an election to defer) the required beginning date. Remember also the statutory commencement language - unless otherwise elected by participant, benefits must begin not later than 60 days following....

Once you commence, participant cannot make a new election unless the plan allows (creates new annuity starting date, haven't seen one that does, outside of dealing with PPA restrictions). The exception being that if you commence in-service RMDs in the normal form you can allow a new ASD and election upon actual retirement, but again, plan provisions must allow. Putting language in the distribution package that clearly says if don't make a timely election then you get the QJSA and are stuck with it forever hopefully provides incentive enough for the participant to respond.

I understand that participants do "disappear" but resolution of such and disposition of the benefit should not be procrastinated until the RBD, do it when the first mail comes back undeliverable, then again at NRD. If benefits are due but unable to be paid, have a plan provision that covers. Unless trying to find hundreds of people each year, the cost of internet search tools to do this is minimal.

[AAS2]

If participant elects different form for late RMDs before participant receives any payments, okay to go from default to election?  

[CuseFan]

Some would say yes, others no - I don't know what IRS would say. Presumably you have an ASD on the RBD, so unless the plan has RASD language, providing any election forms (QJSA notice) after the RBD would technically not be allowed. However, if you find someone after RBD and give them an election and commence timely thereafter and retro to the RBD then I can't see where an IRS agent would give you a hard time. I'd take the position that you're making a corrective distribution and it's not a retroactive annuity starting date.