EP examiners told not to challenge 403(b) plans for violating RMD rules for missing participants

The IRS’s Tax Exempt and Government Entities (TE/GE) has issued internal guidance for the Employee Plans (EP) Examination staff, directing the examiners not to challenge a 403(b) plan for failing to satisfy required minimum distribution (RMD) standards under certain circumstances. The guidance applies to examinations open on and after the date of issuance. It will be incorporated into the Internal Revenue Manual by February 23, 2020.
The IRS notes that this memo addresses only the application of Code Sec. 403(b)(10) to certain circumstances involving a 403(b) plan’s actions concerning benefits when a plan is unable to locate participants and beneficiaries. The memo does not address the application of any other requirements or other applicable law, including Title I of ERISA.
In general, Code Sec. 403(b)(10) provides that a 403(b) contract must satisfy requirements similar to the requirements of Code Sec. 401(a)(9) in order to be receive favorable tax benefits. According to the RMD standards, distribution of a participant’s accrued benefit under a 403(b) plan must commence after the attainment of age 70 and a half of the participant or, in the case of a participant who is not a 5% owner of the plan sponsor, the participant’s retirement. In certain cases, plans have been unable to commence or make a distribution to a terminated participant due to the plan’s inability to locate the participant.

Search requirements

For purposes of Code Sec. 403(b)(10), EP examiners are instructed not challenge a 403(b) contract for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due, if the plan has taken the following steps:

  • searched plan and related plan, sponsor, and publicly-available records or directories for alternative contact information;
  • used any of the search methods below:
    • a commercial locator service;
    • a credit reporting agency; or
    • a proprietary internet search tool 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 IRS states that for 403(b) plans that have not completed the above steps, EP examiners may challenge those plans for violation of the RMD standards for the failure to commence or make a distribution to a participant or beneficiary to whom a payment is due. The IRS cautions that this memo is not a pronouncement of law and is not subject to use, citation, or reliance as such.

Source: IRS TE/GE Memorandum (TE/GE-04-0218-0011)
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