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I apologize, I don't have as much familiarity with DB plans as I do with DC plans, so if there is another thread that answers my questions, or website, or reference material somewhere, please point me in that direction. 

 

Plan Information

Traditional DB plan, does not allow distribution prior to NRA, nor does it appear to allow for single lump sums( don't ask me why, its a convoluted individually designed document, I had nothing to do with it, it came to me that way). 

Normal benefit is regular single life, with 50% JS for married participants. 

Plan has several participants that need RMD - they can't locate them, or in some instances the participants won't respond. 

I suspect for some of the participants, if they received their RMD check in the mail, they would just cash it. 

The question is - the plan does not know the participant's marital status - on what basis do they calculate the annuity, and thus the RMD amount? 

And before you tell me to check the document, it appears to be silent. As I said it is individually drafted and not a typical one at that. 

We are getting less than clear answers from the actuaries and financial institution. 

The actuary isn't willing to calculate any sort of RMD without knowing marital status and Date of birth. 

The financial institution isn't willing to process any sort of RMD without participant consent, which I think is actually a separate issue that we are addressing, but certainly doesn't help matters. 

If it was a 401(k) plan and I didn't know the spouse date of birth (or even if there was one) I would just calculate and have the plan payout based solely on the participant's DOB. But the actuary doesn't want to calculate the RMD based on a single life annuity without actually knowing, so I'm a bit at a loss. 

Surely someone else has figured out a way to handle this? 

 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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I see a number of issues and potential solutions:

1) If you make a valid attempt to contact the participants (paid locator service, documented searches and returned or ignored mailings) I believe you cannot be faulted for not paying the MRD.  The tax penalties are on the participants, but the plan needs to comply with its terms.  If you document you made a valid attempt to contact them, then I think the plan is off the hook.

2) If you know where they are, but don't know if they are married, I would inform the participant that they will be receiving the life only payment and that if they provide a SDOB, the amount may be lower.  I don't believe any participant consent or election is necessary for MRDs, but they are typically obtained.  

Do nothing without plan's counsel's blessing.  

 

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Have you read the IRS Memorandum TE/GE-04-1017-0033 dealing with "Missing Participants and Beneficiaries and Required Minimum Distributions"?  Does it help you?

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I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I have read the recent memorandum on missing participants, it doesn't help much because the lost participants isn't the primary issue. 

The actuary won't even calculate the RMD based on the single life annuity without confirmation from the plan one way or the other that a participant is married, and if so, what their spouse's date of birth it. 

I agree that participant consent is not needed for RMD - so the fact that the financial institution is insisting on it is a problem. For ones that the actuary will calculate, where marital status is known along with SDOB if applicable, the financial institution should take direction from the plan about RMD payout without regard to participant consent. 

I also agree that it is the plan's responsibility to comply with the RMD rules, or at least attempt to, even though the failure to do so is borne by the participant. the plan is trying to comply, but at present the actuary (and secondarily the financial institution) seem to be hampering that process. 

Specifically I'm looking to see if there is any guidance, even if informal, that we can use to push back against the actuary's assertion that martial status and SDOB must be KNOWN to calculate RMD. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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I'm confused by this whole thread...

You said: "I have read the recent memorandum on missing participants, it doesn't help much because the lost participants isn't the primary issue."

If you know where these participants are, why haven't they begun receiving their normal retirement benefit? If you don't know where they are, how does the memorandum not help? Or is it nonresponders you're primarily concerned about?

Just for curiousity's sake, you also said: "I suspect for some of the participants, if they received their RMD check in the mail, they would just cash it." what else might one do with it?

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OP says " Normal benefit is regular single life, with 50% JS for married participants.  ".  Does this mean that if single, single life annuity is $100... and if married, J&50%S annuity is also $100.  Or is the J&50%S annuity the actuarial equivalent of the single life annuity.  If the former, should not be an issue.  If the latter, then yes, what would the RMD be without knowing marital status and SDOB if applicable.  My first thought was to assume married with SDOB equal to PDOB.  Isn't this what PBGC assumes for their missing participant program if information is not available?

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Almost all of the defined benefit plans I have ever seen specified that the QJSA would be the actuarial equivalent of the straight life annuity (occasionally the actuarial equivalent of a certain and life form, where that was the nominal normal form of annuity).  It is very rare, in my experience, for the married participants to receive a fully subsidized (relative to a straight life annuity) joint and survivor form.

I am not clear on what the PBGC does, but I suspect that the amount due for someone submitted under the missing participant program is defined in terms of the nominal normal form, and that the PBGC would be relatively indifferent to the missing participant's marital status and spouse's age since (I presume) joint and survivor forms would inevitably be actuarially reduced appropriately.

Always check with your actuary first!

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Just to confirm how frustrating this continues to be - the financial institution has confirmed unequivocally that they will not put someone into pay status - not even to process an RMD - without the participant's consent. 

So even for participants whose whereabouts are known, if they haven't returned the consent forms, there has been no RMD. 

 

 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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26 minutes ago, justanotheradmin said:

Just to confirm how frustrating this continues to be - the financial institution has confirmed unequivocally that they will not put someone into pay status - not even to process an RMD - without the participant's consent. 

So even for participants whose whereabouts are known, if they haven't returned the consent forms, there has been no RMD. 

 

 

Just wondering if the financial institution has also confirmed that, by deciding, on their own authority, whether or not to put benefits into pay status, they have, without any doubt whatsoever, legally taken on the role of plan fiduciary?  And that if there are any adverse consequences, they can be held financially responsible for their fiduciary acts?

Always check with your actuary first!

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Why would you cut a check to someone whose whereabouts are unknown just to have the check go stale?  If you can show that you searched for the participant, you and the plan should be ok with not issuing the RMD.   Just be sure to have the documentation. 

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"Just to confirm how frustrating this continues to be - the financial institution has confirmed unequivocally that they will not put someone into pay status - not even to process an RMD - without the participant's consent. 

So even for participants whose whereabouts are known, if they haven't returned the consent forms, there has been no RMD."

well, they may be disqualifying the plan.

(a) reg. section 1.401(a)(9)-8:

(While this section deals with RMDs while a benefit is immediately distributable and therefore subject to the consent rules, it would obvously be even more applicable where a benefit is no longer immediately distributable and therefore not subject to the consent rules:)


Q-4. If a distribution is required to be made to an employee by section 401(a)(9)(A) or is required to be made to a surviving spouse under section 401(a)(9)(B), must the distribution be made even if the employee, or spouse where applicable, fails to consent to a distribution while a benefit is immediately distributable?


A-4. Yes, section 411(a)(11) and section 417(e) (see §§ 1.411(a)(11)-1(c)(2) and 1.417(e)-1(c)) require employee and spousal consent to certain distributions of plan benefits while such benefits are immediately distributable. If an employee's normal retirement age is later than the employee's required beginning date and, therefore, benefits are still immediately distributable, the plan must, nevertheless, distribute plan benefits to the employee (or where applicable, to the spouse) in a manner that satisfies the requirements of section 401(a)(9). Section 401(a)(9) must be satisfied even though the employee (or spouse, where applicable) fails to consent to the distribution. In such a case, the plan may distribute in the form of a qualified joint and survivor annuity (QJSA) or in the form of a qualified preretirement survivor annuity (QPSA), as applicable, and the consent requirements of sections 411(a)(11) and 417(e) are deemed to be satisfied if the plan has made reasonable efforts to obtain consent from the employee (or spouse if applicable) and if the distribution otherwise meets the requirements of section 417. If, because of section 401(a)(11)(B), the plan is not required to distribute in the form of a QJSA to an employee or a QPSA to a surviving spouse, the plan may distribute the required minimum distribution amount to satisfy section 401(a)(9) and the consent requirements of sections 411(a)(11) and 417(e) are deemed to be satisfied if the plan has made reasonable efforts to obtain consent from the employee (or spouse if applicable) and if the distribution otherwise meets the requirements of section 417.


(b) Reg section 1.411-11(c)(7):

Section 401(a)(9), etc.

The consent requirements of section 411(a)(11) do not apply to the extent that a distribution is required to satisfy the requirements of section 401(a)(9) or 415. See section 401(a)(9) and the regulations thereunder and § 1.401(a)-20 Q&A 23 for guidance on these requirements.

 

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