Lost participants and required minimum distributions (RMDs) can both create complications for a plan and its administrators and sponsor. But together they create a mix that can exacerbate the stress and urgency they already can engender independent of each other. A recent blog entry suggests how one can ameliorate those results.
“Losing contact with former participants who have vested benefits remaining in your plan can be problematic for both the former participants and the plan sponsor,” says Michael Kovacs in “Required Minimum Distributions and ‘Lost’ Participants,” an entry appearing in the blog of tax and accounting consulting firm ORBA. He continues that it “becomes more urgent” when those lost participants must start receiving RMDs.
Having lost participants who should be receiving RMDs is a problem for a plan for a variety of reasons, Kovacs posits. For one thing, administrative charges are incurred for servicing lost participant accounts; for another, plan sponsors may be accused of breaching their fiduciary duty concerning how they handle the effort to locate lost participants.
Having lost participants who should be receiving RMDs is a problem for a plan for a variety of reasons, Kovacs posits. For one thing, administrative charges are incurred for servicing lost participant accounts; for another, plan sponsors may be accused of breaching their fiduciary duty concerning how they handle the effort to locate lost participants.
But that’s not all, Kovacs says: it costs lost participants as well. They are missing distributions of income to which they are entitled, and face IRS penalties due to failure to take RMDs.
And the government is interested, Kovacs notes. The Pension Benefit Guaranty Corporation (PBGC) will try to locate lost participants, but it won’t do so unless a plan is no longer functioning. The Department of Labor’s Employee Benefits Security Administration (EBSA) also is active, investigating plan sponsors that have not succeeded in finding lost participants. And the federal government is due to receive taxes on distributions, too.
Action Steps
Kovacs argues that it’s not enough for a plan to work to find lost participants; they also should be able to show that they are making the effort and that the process they put in place is organized and consistent. He notes that EBSA suggests several ways to try to locate a lost participant:
- use certified mail;
- check related plan and employer records;
- check with a designated plan beneficiary; and
- use free electronic search tools.
Kovacs suggests additional steps that can be taken, such as hiring a service that will conduct such investigations and approaching current employees who have connections with lost participants regarding their contact information.
Kovacs indicates that consistency is important. “Even if your efforts to find lost participants are not bearing fruit, do not give up easily,” he argues, adding, “Demonstrating persistence can also help establish that you are acting in good faith if your plan is audited.” And, Kovacs reminds, “As plan sponsor you are always responsible for RMDs, even if you have a third-party administrator that handles your plan.”
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