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Dumb Question about mandatory distribution?


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A terminated participant has a vested account balance of less than $1,000.

Per the terms of the plan will make a mandatory distribution of account balances that are $1,000 or less. The distribution will be made as soon as administratively feasible.

The vested amount is >$200, must the participant sign an election form?

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The document may be more employee-friendly, but under the law I believe that all you need to do is to give the participant the option of a direct rollover within the time frame specified by the regulations, but absent such an election you can send the participant a check minus 20% FIT withholding.  I am going on memory so hopefully someone will correct me if I am wrong.

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Send the distribution package out to the participant.  If s/he does not respond by the date specified, you can cut them a check for the gross amount minus withholding.  The key is that you must give them an opportunity to select a distribution option (where there is an option) prior to the auto cash out/auto rollover.

Pamela L. (Bobersky) Shoup CEBS, RPA, QKA

AMI Benefit Plan Administrators, Inc.

100 Terra Bella Drive

Youngstown, Ohio 44505

800-451-2865

www.amibenefit.com

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  • david rigby changed the title to Dumb Question about mandatory distribution

jpod is correct. You must provide the participant with a 402(f) notice. If the participant makes no election for a direct rollover, then you can either make a distribution (and withhold 20%) or the plan can do a direct rollover to an IRA. It depends on the plan terms - and if the plan is silent, then it's a procedural issue as to which way to go. Many find that cutting the check is a problem because you can't force someone to cash a check. 

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  • david rigby changed the title to Dumb Question about mandatory distribution?

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