Form 5500 Reporting on Missing Participants Clarified by IRS

Based on comments received in response to a Paperwork Reduction Act notice regarding the 2016 Form 5500 and Form 5500-SF, the Internal Revenue Service (IRS) announced that filers who have made a concerted effort to locate missing participants will face less of a  reporting burden associated with the missing individuals.

Specifically, plan sponsors henceforth, in the absence of other guidance, “do not need to report on Lines 4I of the Schedule H and I to the Form 5500 and 10f of the Form 5500-SF 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 plan year reporting period.”

The announcement will surely be welcome news to some plan sponsors, who have increasingly cited the issue of missing participants and beneficiaries as a top concern to the smooth functioning of their benefit programs. Prior to the announcement, in fact, some sponsors complained the IRS had made it less than abundantly clear how to deal with these sections of the Form 5500.

As IRS explains, Lines 4l of Schedules H and I of the Form 5500, Annual Return/Report of Employee Benefit Plan, and line 10f of Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, ask a simple-seeming question: “Has the plan failed to provide any benefit when due under the plan?” 

“This question was added to Schedules H and I of the Form 5500 and Form 5500-SF as part of the forms revisions effective for the 2009 plan year,” IRS says. “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 to 5% owners who have attained 70½, and non-5% owners who have attained 70½ and have retired or separated from service.”

Important to note, the new guidance does not actually change plan sponsors’ duty to search out missing participants and is instead “limited to completing the identified annual return/report line items.” Plan administrators and employers should review their plan documents for written required procedures on locating missing participants, IRS warns.

“Also, 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,” IRS concludes.

Additional information can be found at the IRS Form 5500 Corner.