PLANSPONSOR - February/March 2020 - 46

ERISA EXAMINATION
Revised Rules
For RMDs
Sponsors have a new reason to find missing participants
A
s part of the recently enacted SECURE [Setting Every
Community Up for Retirement Enhancement] Act,
the age for taking required minimum distributions
(RMDs) has increased from 70.5 to 72. This applies to individuals
who have turned 70.5 since December 31, 2019, so any who
turned 70.5 and ceased working last year must still begin distributions
by this April 1. In light of this age change, we wanted
to take the opportunity to remind plan committees of the RMD
requirements and the committee's related fiduciary responsibilities
to find missing participants.
As a general rule, retirement plan participants must begin
receiving RMDs by April 1 of the year after which they reach
their required beginning date. The required beginning date is
generally the later of termination of employment or reaching
70.5 (now 72). Too often, we have seen plans fail to begin
making these RMDs.
As this is an area that concerns both the Department of
Labor (DOL) and the IRS-with both agencies actively looking
at this issue during investigations and audits-failure to
implement RMD procedures can lead to problems. We recommend
that committees work with human resources (HR) and
the plan's service providers to make sure the plan has procedures
in place for contacting participants and satisfying the
RMD requirements. The committee should then periodically
monitor to make sure the distributions are actually being made
and missing participants found-or at least that reasonable
steps are being taken to find them.
As the required beginning date is generally no earlier than
termination of employment, by its own terms this rule applies to
former employees. This can sometimes complicate matters, especially
when a former employee has been gone a long time and plan
records have not been updated. The plan's procedures for implementing
RMDs should include steps for locating such people.
But how do you find them? While you could try hiring
Columbo, more realistic steps have been provided by the IRS
and DOL.
In 2017, the IRS issued a memorandum directing employee
plan (EP) examiners not to challenge qualified retirement plans
for failing to satisfy RMD requirements if the plan sponsor has
made a good faith effort to locate participants. This guidance is in
the form of a memo to EP examiners, so it is not official agency
guidance; yet, it reflects the current IRS thinking on steps to
46 PLANSPONSOR.COM February - March 2020
locate missing participants for purposes of RMDs. The guidance
requires that the plan take all of the following steps:
1) Search plan, and related plan, plan sponsor, and publicly
available records or directories for alternative contact information.
Note, however, that HIPAA [Health Insurance Portability
and Accountability Act] privacy rules should be considered before
getting information from a group health plan.
2) Use a commercial locator service, a credit reporting agency
or a proprietary internet search tool for finding individuals.
3) Attempt contact via U.S. Postal Service certified mail to the
last known mailing address, plus through appropriate means for
any address or contact information-including email addresses
and telephone numbers.
The DOL also issued guidance regarding missing participants,
in Field Assistance Bulletin (FAB) 2014-01. While the guidance
is in connection with a terminating defined contribution
(DC) plan, it provides some additional participant locator steps.
As plan sponsors have a fiduciary responsibility to make
reasonable efforts to find missing participants, the committee
should consider implementing the steps the FAB lists. The DOL
indicates that, at a minimum, plan fiduciaries should do all of
the following:
1) Use certified mail (same as IRS guidance).
2) Check related plan and employer records (same as IRS
guidance).
3) Check with the participant's designated beneficiary.
4) Use free electronic search tools such as internet search
engines, public record databases, etc.
To the extent the above four steps prove ineffective, plan
fiduciaries should consider whether further measures are appropriate,
based on the size of the account and the cost of the additional
steps. Additional steps may include using a commercial
locator service, credit reporting agency, etc., but will depend on
the facts and circumstances.
In any event, having procedures in place to locate missing
participants and begin RMDs can help committees meet their
fiduciary responsibilities and demonstrate they have been taking
appropriate steps if questioned by the IRS or DOL.
Summer Conley is a partner in the Los Angeles office of Faegre
Drinker Biddle & Reath LLP. Michael Rosenbaum is a partner
in the firm's Chicago office.
Art by Joseph Ciardiello
http://www.PLANSPONSOR.COM
PLANSPONSOR - February/March 2020

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