RMD - non-calendar year DC plan

I’ve been retired a few years, so maybe I’m missing something?  A former client contacted me with questions re his 2026 RMD.  Non-calendar yr PS plan with an annual val date of 6/30.  So use the 6/30/25 account value less any distributions plus any contributions made between 7/1/25 and 12/31/25 to determine the 26 RMD.   He took his 2025 RMD late in 25, as well as an additional distribution rolled to an IRA.  So these distributions get subtracted from the account balance.   

His (huge, national) TPA firm calculated the RMD without this adjustment, despite the adjustment being defined in both the regs and in the RMD language of said (huge national) TPA firm’s prototype DC plan document. When my client pointed this out to them, the response was “we as a practice calculate the RMD without the adjustments for distributions and contributions after the valuation date.  If you want to use your calculation with the adjustments it is not incorrect to do so.”

So, “as a practice”, they don’t follow the regs or the plan document?  At least if there are only distributions to subtract worst case the RMD is overstated.  But if they also ignore any contributions, they’d be understating the RMD, leaving the participant subject to a potential excise tax and the employer with an operational violation of the terms of the plan.  

Am I missing anything here?  Thanks. 

Jim

Perhaps your former client might now discern some differences between your capabilities and the other firm’s weaknesses.

As Peter suggested, the current TPA is wrong. 

We don’t know what was agreed between the TPA and its service recipient.

6 hours ago, Peter Gulia said:

Perhaps your former client might now discern some differences between your capabilities and the other firm’s weaknesses.

Yeah, he does, and always did, we go back over 40 years!  He suggested I start up a little consulting gig for these sorts of things.  But I REALLY like retirement, riding my bikes, playing with the grandkids and I don’t want to have to keep up on pension stuff.  I even let my ERPA lapse, so I guess by screen name should now just be “sh”!   

I just had to share this somewhere, it astounds me because I can’t imagine not wanting to do it correctly, especially something like this that’s not even difficult or complicated. If a client had pointed out to me that my services were not following the terms of the plan document I provided them, I’d have been properly embarrassed.   

3 hours ago, Peter Gulia said:

We don’t know what was agreed between the TPA and its service recipient.

Peter, you think the service agreement allowed the TPA to ignore the regs and documents? 

Jim,

Enjoy retirement. Suggest they find a good, reasonable TPA.

-John

None of us knows what’s provided or allowed in an agreement we haven’t read. But I imagine a possibility that the situation shERPA describes could be not a breach of the huge TPA firm’s obligation.

I have seen service agreements that:

warn that the provider is obligated only by its service agreement, and is not bound by the plan or its trust;

get the employer/administrator’s acceptance that the provider has no duty or obligation to read the plan or its trust;

omit a service the plan’s administration needs, warning that the employer/administrator without the provider’s help must apply the plan’s provisions;

describe a service that looks like one designed to meet a tax-qualification condition, but warn that the provider gives no assurance that using the service results in the plan meeting the condition;

provide a service according to specified assumptions, even if an assumption is implausible or even contrary to a known fact;

excuse the provider’s responsibility for an error that results from following the written plan, even when the provider knows the written plan states or omits a provision contrary to a tax-qualification condition;

warn that the provider will follow the employer/administrator’s instruction, even if the provider knows the instruction is contrary to the plan, relevant tax law, ERISA’s title I, or other law;

end the provider’s responsibility for an error or omission the employer/administrator does not remark on within 30 days from the report’s delivery;

warn that the provider does not provide accounting, tax, or other legal advice; and

obligate the employer/administrator’s failure to get a lawyer’s advice when an ERISA-prudent person would do so, and provide that the employer’s failure to do so is a breach for which the employer is obligated to defend and indemnify the provider.

I’m mindful that many of us who devote our work to providing good service think some provisions of those kinds might, in at least some circumstances, be unfair or even oppressive. I’m aware many feel a TPA’s services and work standard ought to be guided by the plan, applicable law, and relevant tax law. Yet, I’m also aware that many service providers’ business executives feel it’s not unfair for a service recipient to be bound by the contract it assented to.

Over 42 years, I’ve seen service agreements with many of the provisions described above. I’ve not yet seen a court’s decision that voids such a provision because it’s unconscionable in the meaning the common law of contracts puts on that word (as applied to business-to-business, rather than consumer, contracts).

Whether some business practices might be unfair or indecent in other senses, I’ll leave to BenefitsLink neighbors’ views (and my undeclared personal thinking).