IRS Guidance on Missing Plan Participants
Missing participants continue to be an issue faced by plan sponsors of qualified retirement plans. Fortunately, recent IRS guidance on when IRS examiners should pursue penalties for a plan’s failure to commence required minimum distributions (RMDs) to missing participants provides plan sponsors and administrators with specific procedures they may follow to avoid such penalties.
The IRS has indicated that if a plan has taken the steps set forth below to locate a missing participant or beneficiary, IRS examiners are directed not to challenge a qualified plan for violation of the RMD requirements for the failure to commence or make a distribution to the participant or beneficiary to whom a payment is otherwise due:
- Searched plan and related plan, sponsor, and publicly available records or directories for alternative contact information;
- Used any of these search methods:
- A commercial locator service,
- A credit reporting agency, or
- A proprietary internet search tool for locating individuals; and
- Attempted contact via U.S. 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).
In light of the IRS and Department of Labor’s increased focus on missing participants, plan sponsors and administrators may want to consider reviewing their current administrative practices for locating missing participants, especially with respect to participants approaching their RMD dates.
Expansion of the PBGC Missing Participant Program
The Pension Benefit Guaranty Corporation (PBGC) has expanded its Missing Participants Program to terminated defined contribution plans (previously it was limited to certain defined benefit plans) to connect more missing participants and beneficiaries to their retirement benefits. The expanded program is voluntary and is available to defined contribution plans that terminate on or after January 1, 2018. The expanded program does not cover governmental plans, church plans, or non-ERISA 403(b) plans.
There are two ways that a plan may use the program. Plans may elect to be a “transferring plan” or a “notifying plan.” A “transferring plan” transfers the amount of the benefits of missing participants and beneficiaries to the PBGC and the PBGC will distribute the benefit once the participant or beneficiary is found. A “notifying plan” sends the PBGC information about the entity that is responsible for providing the benefit (e.g., the financial institution used to establish an IRA), so that when the participant or beneficiary is found. the PBGC will share that information with the participant or beneficiary.
Plans must file a form with the PBGC (Form MP-200 and either Schedule A or Schedule B, depending whether the plan is a “transferring” or “notifying” plan). PBGC charges a one-time $35 administrative fee with respect to each missing distributee for whom the plan transfers a payment obligation of more than $250 to PBGC. This fee may be payable from participant accounts and/or the plan’s forfeiture account. No fees are charged for accounts $250 or less or for “notifying plans.”