The Process for Issuing RMDs When Participants Are ‘Missing’

Failing to issue required minimum distributions can be costly, so sponsors must follow exact steps from the IRS and DOL to locate missing participants.

Retirement plan sponsors and service providers are responsible for finding missing participants to arrange required minimum distribution payments, and they face potential penalties if they fail, according to industry experts.

Sponsors must make all possible efforts to find those participants, as directed by IRS guidance and Department of Labor best practices. Failure to do so can lead to the plan losing its favorable IRS tax treatment and could even end in plan disqualification, says Kim Couch, a partner at Verrill Dana, a New England-based law firm.

She advises that plan sponsors should not wait to find any missing participants who are eligible for RMDs until it’s too late to act. 

“Plan sponsors need to get on it,” Couch says. “They need to get on it now. On the IRS side, you have a qualification issue if you’re not making timely required minimum distributions. If it happens that a participant doesn’t get it, they also receive a 50% excise tax on the amount that they would receive.”

IRS rules require that plan sponsors begin to disburse participants’ accumulated retirement account balances by specified schedules. A participant who has deferred salary amounts to an employer-sponsored retirement plan is required to start taking distributions—depending on which is later and the plan’s rules—by April 1 of the calendar year in which the participant retires or the calendar year in which the participant turns 72.


Plan sponsors must act to correct any issues with distributing RMDs immediately, Couch says. “They do not want to sit and wait because right now you could self-correct in the IRS program, but once you get into audit CAP [Closing Agreement Program], the IRS will assess penalties and they will start with ‘How much money would we make if we disqualified your plan,’” she explains.

And if participants had to include amounts into income, the agency will examine penalties that it could impose because now they haven’t withheld on this income. “They will barter it down, but the penalties will be severe,” Couch says.

There are several options under the IRS Employee Plans Compliance Resolution System that plan sponsors can use to self-correct an issue with RMDs. Plan sponsors can opt for the Self Correction Program or the Voluntary Correction Program.

If a plan sponsor self-corrects under the SCP, the participant-owed excise tax can’t be waived, while under the VCP program, the plan sponsor may request a waiver.

Additional Steps

Plan sponsors are required to take several actions if an RMD for a participant cannot be made, or the plan faces potentially being disqualified, Couch says. 

Plan sponsors without address information on participants must immediately follow the steps outlined by the IRS to try to find an address. Those steps include conducting audit checks and reviewing death notices, among other things.

“They need to first look at the information they have on file for the retirement plan to see if there’s any additional information, maybe in a welfare plan, maybe that person is on COBRA [Consolidated Omnibus Budget Reconciliation Act] or retiree medical and has updated information,” Couch says. “They need to do a general search; they can Google the person and look at publicly available records and directories. If that does not come up with information, they need to use a commercial locator service, a credit reporting agency or some other proprietary internet search tool to locate individuals.”

After the plan sponsor has taken all these steps, if the participant still cannot be found, the plan provider must then resend the check by certified mail to the participant’s last known address.

“Once they’ve done that, at least they’ve done everything they can to protect themselves, both under the Department of Labor and the IRS guidance. They’ve taken the steps to show the participant is missing,” Couch says.

She explains that the DOL has outlined additional steps it suggests sponsors take. For example, they should check to see if a participant has provided beneficiary information that’s on file and see if they may be able to get more information on the participant from colleagues.

“Maybe they’re friends with somebody that you have good information for because they’re still employed or they’re terminated but you may have contact information,” Couch adds. “Basically, you do everything in your power to locate the person and then, if you cannot locate that person, document it in writing, in your files, that all of these steps have been taken that this person is missing, and that’s the way for the for the sponsor to be safe.”

Plan sponsors with online platforms should also remind participants that they should update their information, and providers should stay diligent, she adds.

“From beginning to end, plan sponsors need to be pulling their data not just when someone comes up for required minimum distributions,” Couch says. “They should be reviewing everything and making sure contact information is up to date constantly. Participants’ communications, like summary annual reports or benefit statements, should always include a request to update information if a participant has moved or has a different phone number or email.”

Andy Banducci, senior vice president of retirement and compensation policy at the ERISA [Employee Retirement Income Security Act] Industry Committee, also known as ERIC, says the updated DOL and IRS guidance reflects that the federal agencies have stepped up enforcement activity for finding missing participants and making sure RMD checks are disbursed.

“Several years ago, we started seeing a lot of enforcement activity and regulatory interest in getting [missing] participants for the large sponsors,” he says. “We do what we can to find the participants, but there are some that are just nonresponsive for whatever reason, and that presents an operational challenge for sponsors.”

It is a particular challenge operationally when the participant’s balance is small, Banducci adds. “Some [participants] have very low account balances,” he says. “There’s a cost-benefit question that we think is relevant: How much money do you spend to find someone if there’s a relatively small account balance?”

Banducci says ERIC is very supportive of the agencies providing guidance to plan sponsors and examples of best practices.

“The Department of Labor did that last January so we are more comfortable with those approaches where it’s ‘here are some good things that people do,’ rather than heavy-handed enforcement or one-size-fits-all enforcement,” he says.