Missing Partcipant and RMD

Client has a participant that has 1st RMD coming up. Assume the 401K balance is more than $10K and less than $100K.

This participant has been missing for some time. They have scoured their own records and a commercial participant locator service produced an older address that the participant has not been at for some time.

What to do with the RMD and what to do with balance that is more than cash out limit in on going plan?

All of the various ways the agencies have proposed procedures or made suggestions about finding a missing participant, no one explicitly tells us what to do when, for a plan that is not terminating, we try everything in good faith and cannot locate the missing participant - with some exceptions that are not considered acceptable by all of the agencies.  

The IRS says we can forfeit the benefits and pay it if the participant is found. The DOL doesn't like this.

The IRS at least acknowledges in the 5500 instructions to the compliance question about benefit due but not paid that some participants will not be found by saying:  "Note: In the absence of other guidance, filers do not need to report on this line unpaid required minimum distribution (RMD) amounts for participants who have retired or separated from service, or their beneficiaries, who cannot be located after reasonable efforts or where the plan is in the process of engaging in such reasonable efforts at the end of the plan year reporting period."

There does seem to be some grudging, temporary acceptance by the DOL of the notion to write the check and let it escheat to the state.  The IRS doesn't seem to mind as long as they get default withholding.

The IRS and DOL want us to report to them people due benefits, but neither agency wants to let a plan cease to have the responsibility to find a missing participant (unless the plan can pass off that responsibility to a business that will take the participant's account where it slowly disappears into the abyss of administrative fees).

The PBGC is willing to help, but not for DC plans unless the plan is terminated.

Hopefully, sometime, we will have clarity across all agencies about what a plan can do with benefits due to participants who remain missing despite everyone's best efforts to locate them.  This has about the same chance as there being universal peace, love and happiness.

An October 19, 2017 Internal Revenue Service memo (later put in the Internal Revenue Manual) directs an Employee Plans examiner not to challenge a plan’s tax-qualified treatment for failing to meet the plan’s minimum-distribution provisions if a plan’s administrator took the search steps the memo states.

missing participant minimum distribution memo-for-employee-plans 2017-10-19.pdf

Paul, thanks you summary is excellent and pretty much matches what I thought already.

Peter, thanks so much for the IRS memo, that's exactly what I was looking for!

On a different somewhat related note, does anyone have a good missing participant search company that they like? If you don't want to post in the thread feel free to shoot e a PM. Especially one that will do a detailed death search in case the participant has passed? The one we used came up with an address the participant is known to not have been at for some time.

We have had very good results (at a reasonable cost) from searches done by EmployeeLocator.com