Required Minimum Distribution Audit – Finding terminated workers may be a challenge.
In 2016 the Department of Labor (DOL) initiated systemic audits of retirement plans and other ERISA severance plans to ensure compliance with minimum distribution requirements. The audits are designed to determine if plan sponsors are making timely payments of vested benefits to retirement –eligible participants. Under the required minimum distribution (RMD) rules, sponsors must make reasonable attempts to find terminated vested participants who have reached their “required beginning dates”.
According to a recent report, almost 100 audits have been conducted this year already, highlighting the importance of maintaining accurate records of the retirement plan and participants. But in addition to all the other responsibilities of a plan sponsor, the RMD rules are forcing sponsors into a game of Where’s Waldo!
The RMD Requirements
Code Section 401(a)(9) obligates every qualified plan to provide RMDs as soon as a participant reaches their required beginning date (generally April 1 following the end of the year in which the participant attains age 70½ or has a termination of employment, if later). Failure to distribute an RMD may ultimately result in plan disqualification by the IRS. It could also force an imposition of a 50% excise tax on the participant or beneficiary, unless the plan is corrected through the IRS and specifically requests a waiver of the tax.
Failure to comply with the rule may be subject to fines (per participant) from the DOL as well as a separate sanction by the Internal Revenue Service (IRS). Failure to follow ERISA’s record maintenance requirements could cause a $28 (recently increased from $11) per participant penalty for failure to do so.
Plan sponsors who are unsure about compliance may wish to consult the IRS web site which provides several resources on how to identify and correct plan errors. The relevant pages can be found at the following location: https://www.irs.gov/retirement-plans/correcting-plan-errors
