The answer turns out to be "NULLS are allowed but require extra work." User Carl Groner commented above with a link to an excellent article which explains this from the RPG programmer's point of view. Here is the pertinent part which applied to my problem:
RPG/400 doesn't support processing NULLs in a database file. If a file contains NULLs, specifying the ALWNULL(*YES) compiler option on the Create RPG Program (CRTRPGPGM) command allows the program to access the file as input only, with the caveat that all NULL-capable fields contain the "default" value when a NULL is encountered. This means the RPG/400 program will have no way of distinguishing a NULL from a blank, for example.