(b)lines Ask the Experts – Forcing RMDs

“There are several individuals who are no longer working for us, are over age 70 ½, and have never taken their required minimum distributions (RMDs).

“Despite the best efforts of the vendor and our staff to facilitate RMDs for these individuals, they have been unresponsive, failing to inform us if they are satisfying the distribution requirement via another 403(b) account or to request a distribution. Note that these are NOT lost or deceased participants—my theory is that they simply do not wish to bother with the paperwork and do not realize the potentially severe tax consequences of their actions. Can we amend the plan to force minimum distributions to individuals who fail to respond?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:

Possibly. In a previous Ask The Experts Q&A, we discussed the issue of a failure to satisfy the minimum distribution requirement, but stopped short of discussing forced distributions. The reason for this is that the Experts feel that every effort should be made on the part of the plan sponsor/recordkeeper to track down all nonresponsive participants and determine their minimum distribution situation (e.g. whether the participant is satisfying the requirement via distributions from a 403(b) account, or is simply failing to satisfy the requirement at all).

But it appears that you have traveled down this road already, with no success. The Experts can emphasize with your situation, as they have experienced identical scenarios in working with other plan sponsors where, despite the best efforts of all parties, many apparent failures to satisfy the RMD requirement are part of the plan’s records. If the plan is audited by the Internal Revenue Service (IRS), such failure could result in significant consequences to the plan.

However, the Experts strongly recommend working with appropriate benefits counsel and your recordkeepers before adding a forced minimum distribution to your plan for nonresponsive participants. Among the many reasons for such consultation is that you may discover that a) provisions of certain annuity contracts and/or custodial agreements that are a part of the plan may effectively prohibit such distributions, or b) the recordkeeper(s) may be unable to administer such a provision.

Good luck!       


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.