Plan sponsors can use the Employee Plans Compliance Resolution System (Rev. Proc. 2016-51, as modified) to voluntarily correct the mistake of not making required minimum distributions (RMDs) under Internal Revenue Code Section 401(a)(9) to affected participants and beneficiaries.
Self Correction Program (SCP) - Depending on the specific plan circumstances, you can use SCP to correct a RMD failure even if the plan is under an Employee Plans examination. However, participant-owed excise tax under IRC section 4974 can’t be waived under SCP.
Voluntary Correction Program (VCP) - Unlike under SCP, you may request a waiver of the IRC Section 4974 excise tax for RMD failures using VCP. Learn more by reviewing Tips for VCP Submissions for Required Minimum Distributions.
VCP Forms – To report a RMD failure, you may complete IRS Form 14568-H, Model VCP Compliance Statement - Schedule 8: Failure to Pay Required Minimum Distributions Timely, as an attachment to IRS Form 14568, Model VCP Compliance Statement, as your VCP application. You can’t use Form 14568-H for:
- Affected beneficiaries – Only use Form 14568-H for affected participants. If the failure involves both participants and beneficiaries, then do not use Form 14568-H. Instead, you may report the failure on Form 14568 (or an alternative narrative format) and identify whether the affected beneficiaries are spousal or non-spousal beneficiaries when you describe the mistake and how it's going to be fixed.
- Other failures – If the listed RMD failure is also an IRC Section 401(a)(14) commencement of benefit failure or any other failure, use the Form 14568 (or alternative narrative format).
Consequences of RMD failures - When tax favored retirement plans don’t pay RMDs in a timely manner:
- The plan sponsor faces the potential disqualification of the plan, which ultimately affects all plan participants in a negative manner.
- The plan participant who should’ve received the RMD is liable for an excise tax under IRC Section 4974 equal to 50% of the amount of the RMD not received.
- Correcting Plan Errors – Fill-in VCP Submission Documents
- Missing Participants and Beneficiaries and Required Minimum Distributions
- FAQs regarding Required Minimum Distributions
- Publication 590-B, Distribution from Individual Retirement Arrangements (IRAs) - includes life expectancy tables used to calculate RMDs.
- Publication 560, Retirement Plans for Small Business (SEP, SIMPLE and Qualified Plans)
- RMD Comparison Chart - IRAs vs. Defined Contribution Plans