October 30, 2017

Missing Participants with Unpaid Required Minimum Distributions — IRS Releases Helpful Guidance for Plans Undergoing IRS Plan Audits

On October 27, 2017, the Internal Revenue Service (IRS) publicly released guidance, previously provided to its Employee Plan auditors, establishing the criteria that the auditors should use to determine if a plan under audit has a qualification issue when required minimum distributions (RMDs) under Section 401(a)(9) of the Internal Revenue Code  have not been timely paid to missing participants.

Under the guidance, auditors are instructed not to challenge a plan as violating the RMD rules for failing to commence or make an RMD to a missing participant or beneficiary if the plan has taken the following steps:

  • Searched plan and related plan, sponsor and publicly-available records or directories for alternative contact information;
  • Used any of the following search methods: a commercial locator service, a credit reporting agency, or a proprietary internet search tool for locating individuals; and
  • Attempted contact via United States Postal Service certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers).

This guidance, which applies to audits of cases that were already open on October 19, 2017, and to cases opened after that date, will be helpful for plans that have unpaid RMDs and are undergoing IRS audits now or in the future. However, the guidance states that it has no impact on Department of Labor (DOL) audits under Title I of the Employee Retirement Income Security Act (ERISA). It is too early to know whether DOL will give any deference to the IRS’s audit position with regard to what is an adequate search for ERISA purposes.

The guidance states that it will expire on October 19, 2019, unless renewed.

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Serena Simons

Serena Simons

SVP, National Retirement Compliance Practice Leader

Stuart Sirkin

Stuart Sirkin

VP, National Retirement Compliance Deputy Practice Leader