Certain employee benefit plans, including qualified retirement plans, must file an annual return/report on Form 5500 with the Department of Labor, which is shared with the IRS. Each year discreet changes are typically made to the Form 5500 and its accompanying schedules. One such change made to the instructions underlying Lines 4l of Schedules H and I of the Form 5500 and Line 10f of Form 5500-SF has caused plan filers considerable angst.
The question, which was originally added in 2009, asks “Has the plan failed to provide any benefit when due under the plan?” Prior to 2015, the instructions did not include examples of what constituted a reportable failure to provide any benefit when due under the plan. The IRS “clarified” the instructions in connection with the 2015 Form 5500 and Form 5500-SF to explain that a reportable failure included unpaid minimum required distributions (RMDs) to 5% owners who have attained age 70½, and non-5% owners who have attained age 70½ and have retired or separated from service.
Plan sponsors and administrators have not previously interpreted this question to include this situation. Failure to pay an RMD when due is a common problem under tax qualified retirement plans when participants fail to keep the plan administrator informed of changes in their address. When the plan attempts to pay them their RMD, the participant is sometimes not able to be located. Given the predilection of the IRS and DOL to pick a plan for audit based on the answers to questions on the Form 5500, plan sponsors and administrators were understandably concerned.
The IRS received comments to this effect when it solicited feedback on its proposed changes to the 2016 Form 5500. Based on these, the IRS announced on its website on July 29, 2016, that filers do not need to report unpaid RMD amounts for participants who have retired or separated from service, or their beneficiaries:
- who cannot be located after reasonable efforts; or
- where the plan is in the process of engaging in such reasonable efforts at the end of the plan year reporting period.
The IRS cautioned that future guidance may require reporting of these unpaid RMD amounts. Also, the IRS suggests that plan administrators and employers review their plan documents for written procedures on locating missing participants. The IRS notes that although the Department of Labor’s Field Assistance Bulletin (FAB) 2014-01 is specifically applicable to terminated defined contribution plans, employers and plan administrators of ongoing plans may want to consider periodically using one or more of the search methods described in the FAB in connection with making reasonable efforts to locate RMD-eligible missing participants.