Line 4l of Schedule H of the Form 5500, Annual Return/Report of Employee Benefit Plan, asks “Has the plan failed to provide any benefit when due under the plan?” When this question was added to the 2009 Form 5500, 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 to explain that a reportable failure included unpaid minimum required distributions to 5% owners who have attained 70½, and non-5% owners who have attained 70½ and have retired or separated from service.

The revised instructions have caused a great deal of confusion as calendar year plans were preparing to file their 2015 Form 5500. On July 29th, the IRS announced that, in the absence of other guidance, filers do not need to report on Line 4l of the Schedule H unpaid required minimum distribution (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 reporting period.

Although not required to report unpaid RMDs for “lost” participants, plan administrators and employers are advised to review their policies and procedures for locating missing participants. While 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.

Of course, any RMD failures for participants other than those considered “missing” would still be required to be reported on Line 4l of Schedule H. Plan sponsors may voluntarily correct such mistakes through a variety of methods. RMD failures may cause potential disqualification of the plan and potential excise taxes for the affected participants.

Plan administrators should consult with the plan’s legal counsel or contact their Legacy representative with additional questions on this issue.

Legacy News Flash 16-4
Issued 8/5/2016