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Distributions of one cent


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In a profit sharing plan that had reallocated forfeitures, three of the participants were allocated one cent in forfeitures. Does anyone have experience making a check payable to the participant for one cent? I see another participant has a balance of thirteen cents and while it is small, that isn't as bad as one cent. The small reallocation came from a relatively new participant who received their share of reallocated forfeitures, was not fully vested, and then terminated their employment, thus creating a forfeiture of that small amount. We are lucky there was no loss in the plan or their one cent could have dropped lower.

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Which is generally why I design plans to have forfeitures pay plan expenses and used to reduce employer contributions.  This, to me, it a plan design failure; especially if the plan is being billed based on the number of participants with accounts.  The plan just got billed for 3 participant accounts that total $0.15 in assets.  Whatever you decide, these accounts should be closed; even if you have to cut a check for $0.01.  You should also consider potential changes in the plan design that would prevent this from happening again in the future.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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I have looked into this question before and there is no de minimis rule for paying benefits.  No matter how small the law says you have to pay them.  Now if the plan has in the past charged a distribution fee which would exceed this a case can be made the fee takes up the payment and the person gets nothing.  But if you are looking for a rule that says you don't have to make a payment of small amounts it doesn't exist.  As a practical matter I don't know how much trouble you would get by not paying it.  I know I have had plans where the PA was willing to risk it and we wrote off the balance but the law does not say that can be done. 

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Is it April Fool's Day?  I would allocate losses, or tell the recordkeeper to wipe out the accounts, or whatever it took to not look at them or think about them for more than a second.  It is indeed either a document design flaw as ETC notes, or an operational flaw (as in, someone should not have let this happen in the first place).

Ed Snyder

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