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IRS Guidance on Missing Plan Participants and Required Minimum Distributions

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A recently issued IRS internal memorandum provides guidance that addresses when IRS examiners should pursue potential penalties for failure to begin making required minimum distributions to missing participants in qualified plans. The IRS memorandum gives a roadmap for plan administrators to follow to ensure that, in the event of an IRS audit, penalties will not be imposed for failing to make minimum required distributions to missing participants.


Missing participants have been, and continue to be, a particularly vexing problem for administrators of tax-qualified plans under Section 401(a) of the Internal Revenue Code (the Code), which include 401(k) and pension plans. The term “missing participant” refers not only to participants and their beneficiaries for whom the plan administrator does not have a valid address or contact information, but also individuals for whom the plan administrator has a valid address, but who refuse to accept or are otherwise unresponsive to communications and/or distributions from the plan.

Among the potential qualification issues for a plan is the failure to timely make a required minimum distribution (RMD) under Section 401(a)(9) of the Code to a missing participant. Section 401(a)(9) requires a plan to make RMDs to participants of their plan benefits beginning on April 1st of the calendar year following the later of (i) the year in which the participant attains age 70½ or (ii) the year in which the participant retires (clause (ii) does not apply if the participant is a 5% owner of the plan sponsor of the plan). Not only does the failure to timely make an RMD put at risk a plan’s qualified status, but it also subjects the participant to a 50% excise tax. There is no exception to the RMD requirement merely because the individual is a missing participant.

IRS Memorandum Regarding RMDs

In a recent Memorandum for Employee Plans (EP) Examination Employees from the Acting Director, EP Examinations of the TE/GE Division of the Internal Revenue Service (IRS), dated October 19, 2017, IRS examiners are now directed not to challenge the qualified status of a plan for violation of the RMD requirements under Section 401(a)(9) for failure to commence or make a distribution to a missing participant to whom a payment is due, if the plan has taken the following steps to locate the missing participant:

  • 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 propriety internet search for locating individuals; and
  • Attempted contact via United States Postal Service (USPS) certified mail to the last known mailing address and through appropriate means for any address or contact information (including email addresses and telephone numbers).

The memorandum states that if a plan has not completed the steps above, IRS examiners may challenge a qualified plan for failure to the comply with the RMD requirements when a payment is due under the statute. This is welcome relief from one set of plan fiduciary worries related to missing participants.

Don't Forget about ERISA

Missing participants are not solely a plan qualification issue. Missing participants also raise fiduciary duty issues for the plan administrator under the Employee Retirement Income Security Act (ERISA). In Field Assistance Bulletin No. 2014-01, dated August 14, 2014 (FAB 2014-01), the Department of Labor (DOL) addressed the missing participant issue in the context of a terminated 401(k) or other defined contribution plan. The DOL explained that, consistent with the obligations of prudence and loyalty, a plan fiduciary must make reasonable efforts to locate missing participants in order to implement directions on plan distributions from the participants. While focused on a terminated plan, the DOL’s comments have equal application to an on-going plan.

FAB 2014-01 lists the following search methods as the minimum steps the fiduciary of a terminated defined contribution plan must take to locate a participant:

  • Send a notice using certified mail;
  • Check the records of the employer or any related plans of the employer;
  • Send an inquiry to the designated beneficiary of the missing participant; and
  • Use free electronic search tools.

If the search steps are not successful in locating the missing participants, the plan administrator must consider whether additional search steps, such as commercial locator services, credit reporting agencies, information brokers, investigation databases and analogous services that may involve charges, are appropriate. Factors to consider in making this determination include the size of a participant’s account balance and the cost of further efforts. FAB 2014-01 notes that a plan administrator may be able to charge reasonable search expenses to the participant’s account. If a missing participant cannot be located despite reasonable search efforts, FAB 2014-01 discusses the appropriateness of distributing the participant’s benefits into an IRA.

Unlike the DOL, the IRS’s administrative enforcement guidance just issued does not require the administrator to identify and contact the missing participant’s designated beneficiary. Moreover, the IRS guidance requires the use of one of the following search methods: a commercial locator service, a credit reporting agency, or a propriety internet search for locating individuals. In contrast, the DOL does not require that these search methods be used in all cases but may require the use of more than one of these methods if justified under the circumstances. It is not known whether the DOL will give any deference to the IRS’s position on what constitutes “reasonable efforts” to locate missing participants.

What Should Plan Administrators Do?

In response to the guidance issued by IRS and DOL, plan administrators should review their procedures for maintaining current contact information for current and former participants and beneficiaries and identifying when there may be an issue, such as, for example, when a communication is returned or a check is uncashed. The plan administrator should, at a minimum, adopt and employ missing participant procedures that are designed to show a reasonable effort to satisfy the steps outlined by both the IRS and DOL.


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