What if the plan’s administrator did not know the participant died?

The Internal Revenue Manual directs an Employee Plans examiner not to challenge a plan for failing to meet § 401(a)(9) if the plan’s administrator could not locate the distributee after a diligent search that included IRS-specified steps.  IRM 4.71.1.4(15)(d) https://www.irs.gov/irm/part4/irm_04-071-001

But that direction does not speak to a situation in which an individual-account (defined-contribution) retirement plan paid no involuntary minimum distribution because the plan’s administrator did not know the participant died.

Should the IRS relax strict adherence to § 401(a)(9) if the plan’s administrator shows it followed reasonable procedures to detect participants’ deaths?

What should those procedures be?

How often does it happen that no one has filed a claim within ten or eleven years after a participant’s death?

1 hour ago, Peter Gulia said:

How often does it happen that no one has filed a claim within ten or eleven years after a participant’s death?

For us, virtually never. What happens more often is that within a year or two, someone is cleaning out the house, apartment, garage, etc., and they find a file or a box containing an annual benefit statement, etc. - they then inquire, and most of the time the total distribution took place prior to death so thankfully there is no benefit remaining. But we do primarily small plans. 

Belgarath, thank you for the good help.

Anyone with a different experience or perspective?

And has anyone seen an IRS examiner assert that a plan flunked 401(a)(9) because the plan's administrator had done nothing (beyond deciding claims submitted) to detect participants' deaths?

If a participant has been deceased that long, were not items such as statements, fee disclosures, SARs, SPDs, etc. returned as undeliverable?

If a family member continued to receive then yes, it surprising no one came forward with a claim.

Usually death searches are done on pension plan retiree populations (sometimes including deferred) but rarely if ever on DC plans - maybe that's a practice that should be undertaken?

CuseFan, I hope routine death searches, which a defined-benefit plan’s administrator might do to guard against overpayments, need not be done for an individual-account (defined-contribution) retirement plan.

I mentioned ten or eleven years because a plan might not compel an involuntary distribution to a beneficiary until ten years after the participant’s death.  Internal Revenue Code § 401(a)(9)(H).

About the idea that someone might find a participant’s papers, retirement plans’ use of electronic communications means many get little to no paper.  And it might take a while for an email address to become discontinued and generate a bounce-back.  Or an employer might have assigned its former employee an email address the employer does not discontinue.

But I hope neither IRS nor EBSA makes it necessary to spend participants’ money on routine death searches.

I’d like to think most death benefits get claimed soon enough after a participant’s death.

2 hours ago, Peter Gulia said:

I’d like to think most death benefits get claimed soon enough after a participant’s death.

I just recently had a case in an ESOP where the plan found a person 5 years after the death.    They kept trying to find the person as the mail same back.   They finally got a hit on an internet name search that showed an obit.   They couldn't figure out why the obit hadn't shown up before.   They called the church the obit said the services were held at and the minster was still in contact with a family member.  

6 hours ago, Peter Gulia said:

CuseFan, I hope routine death searches, which a defined-benefit plan’s administrator might do to guard against overpayments, need not be done for an individual-account (defined-contributio

In the DOL's recent missing participant guidance (applicable to defined benefit and defined contribution plans), the DOL included the following as a best practice for missing participant searches:

If participants are nonresponsive over a period of time, using death searches (e.g., Social Security Death Index) as a check and, to the extent such search confirms a participant’s death, redirecting communications to beneficiaries.

It doesn't go so far as to direct plans to do routine searches of all participants, although that's not to say the DOL may not separately (outside of the context of missing participants) want plans to do regular death audits after a certain age.

Adi, thank you for reminding us about that January 12, 2021 “Best Practices” document, and for giving us something to think about.

EBSA suggests considering a death search “[i]f participants are nonresponsive over a period of time[.]”  But that suggestion supposes that the plan’s administrator already has classified some number of participants as nonresponsive.

An absence of communication from a participant does not necessarily make her unresponsive because the plan might not have required any election, direction, or other choice.

Imagine a participant who leaves her employer at age 42.  If she does not take a distribution and the plan follows her continuing direction to invest her account in a target-year fund, 30 years might elapse before the next activity that requires the participant’s choice or act.

Or imagine a participant who at age 72 chose to receive automated monthly direct-deposits of her minimum-distribution amounts.  If she dies but the bank account is not closed and continues to collect the direct-deposits, the plan’s administrator might have seen nothing that called for treating the participant as unresponsive.

Further, even if a participant has not responded to the plan’s communication that called for a response, there remain difficult questions about how much of participants’ money a fiduciary should spend on finding whether a participant is alive or dead.

And if there is some age beyond which one might presume some greater likelihood that a participant has died, what age should one use?  Under the Treasury department’s life-expectancy table, someone who reaches age 72 has another 17.2 years—that is, to 89.2 (but about half will live longer).  Someone who reaches age 85 has another 8.1 years—that is, to 93.1 (and again, about half will live longer).  (I’m aware these tables oversimplify mortality measures.)

Absent a postal-mail or email undeliverable, or a rejection of a payment (or the absence of a response to something that required a response):

Does this suggest checking for deaths, if at all, only among the 90-somethings?