IRS Plan Examiner Memo Confirms Proper RMD Recipient Search Procedure

The IRS recently posted an internal memorandum for retirement plan examination staff at its website, concerning procedures retirement plans are expected to use when seeking missing participants or beneficiaries who are required to take distributions.

Retirement plans are required to pay out required minimum distributions (RMDs) to participants age 70½ or older who are not allowed to delay distributions to post-age 70½ retirement, or who are separated from service but have a balance remaining in the plan after attaining this age. Similarly, retirement plans are required to pay out certain amounts that Treasury Regulations require be distributed to beneficiaries of plan participants. Under certain circumstances such payouts may be complicated by an inability to locate former employees or beneficiaries who have a plan balance from which a distribution must be made.

The memo informs IRS examiners that retirement plans should not be considered in violation or challenged if certain measures to locate missing individuals have been taken. This memo does not contain or constitute new or unexpected guidance, but essentially affirms what some in the industry have considered reasonable locating steps.

The IRS memo states that plans should not be considered in violation if they have done all of the following.

  • Have searched the records of the plan (including related or affiliated employers’ plans), the plan sponsor, and publicly-available records or directories
  • Have used the search capabilities of a commercial locator service, credit reporting agency, or proprietary Internet search tool
  • Have attempted contact by U.S. Postal Service certified mail to the last known mailing address, and to any appropriate address or contact information (e.g., email address or telephone number)

Examiners are informed in this memo that if these steps have not been taken, a plan may be challenged for violating its obligation to meet required distribution standards.