Cynchbeast

Cash out under $200

7 posts in this topic

We have always operated with the understanding that plan may simply pay out terminated participants with less than $200, of course with nothing withheld.  Does anyone have a reference we can cite authorizing the plan to do this?  We have plan trying to clear out old dead wood and several people have balances well below the $200. 

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Your best cite would be your plan document.  At any rate, this provision is under the eligible rollover rules.  What you're doing is providing them a distribution notice (which effectively explains their rollover rights).  If the balance is less than $200, then there is no right to rollover; you don't even need to give them a notice.

So, you can review the language of your notice, or the plan document,  They should be pretty consistent.

 

Good Luck!

Edited by ETA Consulting LLC

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Here's something from the 1099-R instructions:

You are not required to withhold 20% of an eligible
rollover distribution that, when aggregated with other
eligible rollover distributions made to one person during
the year, is less than $200.

 

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Folks aren't going to like this, but....... there is no exception to the 402(f) Notice for distributions under $200.  With that said, the 402(f) regulations allow a plan sponsor to remove inapplicable sections.  So, other than plan identifying characteristics you end up with a very short 402(f) Notice that merely tells them they have the right to rollover what they have received if they want to do so, as long as they do it "timely" (I don't have time to look up the rule, but I think it is within 60 days).  Then again, is the only downside to not providing a 402(f) Notice a potential $10 fine?  Unless you want to drag in the "intentional violation of ERISA" stuff (but I find it hard to believe somebody would pull out such a heavy handed enforcement tool in this case).

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I agree. What I meant to suggest was that minimum 30 day notice doesn't apply. So, you can issue the notice with the distribution as opposed to waiting for them to respond.

I misspoke.

Good Luck. 

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Check out:

I.R.C. 411(a)(11)(A)

Treas. Reg. §1.401(a)(31)-1, Q&A 11

Treas. Reg. §31.3405(c)-1 Q&A 14

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