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Not following cash-out rules


BG5150

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Plan requires cashouts of vested balances under $1,000.  PA has been negligent is this regard.

Is there any sort of penalty that could arise from not doing this?  (It has been universal, no one has been cashed out involuntarily)  What if it's cought in audit.  Is it one of those, just cash 'em out now and be more diligent in the future, type of thing?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Technically, it is a failure to follow the plan terms, with the potential issues that that entails.

Having said that, the most likely form of penalty will be having, X years later, to spend more than $1,000 to try to find them and get the benefits (now more than $3,000) paid out!

Always check with your actuary first!

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Well, it is an operational error, so theoretically, the IRS could disqualify the plan. It strains credulity to think that the IRS would do this, but they might impose some sort of penalty.

I agree - I don't see what else you could possibly do other than to get it cleaned up and have it done right in the future. Of course, with something in the files to document the changes in administrative procedures to prevent it from happening in the future, as with all self-corrections.

I suppose you could do a full-blown VCP filing to retroactively amend the plan to conform to actual operations, but that seems crazy to me. I sure wouldn't do it...

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Thanks.  I just wanted to make sure I wasn't missing anything big.

 

We are just going to have the ER pay the participants out (its a pooled plan) and we will get them the 1099-r's

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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Yes, it's an operational error, but there is also a practical aspect: maybe those participants weren't paid out because they never provided the ER with an updated address.  A review of this may suggest that the ER modify an HR policy (ie, outside the plan itself) to emphasize to departing employees the importance of a mailing address.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I think they are, after speaking with the client.  I am suggesting using an auto-rollover company.  Maybe Penchecks.  Any other good ones out there?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

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