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bveinger

Small Amounts in 403(b) Annuities Plans

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What are our options for handling low or small balance accounts (between $0.01 and maybe $10) where the participant or family member in death cases does not want the funds. The individual(s) are voluntarily forfeiting the funds. Do we forfeit funds back to employer or do we automatically disburse the small balance (i.e. to the estate). How do we distribute small amounts out of the account (403b, 457 and 401a)?

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While none of us knows the surrounding facts and circumstances of the situations bveinger describes:

 

Whoever perceives a duty or obligation to decide something about a § 403(b) plan or § 403(b) contract might want to read carefully all the documents and get its lawyer’s advice about whether the plan or contract requires a distribution.

 

A § 403(b) contract must meet § 401(a)(9) minimum-distribution rules.  But in applying those rules to § 403(b) contracts, the minimum-distribution rules for IRAs apply.  26 C.F.R. § 1.403(b)-6(e)(2).  An individual need not take a minimum-distribution amount from a particular contract; it is enough that one gets her required amounts from whichever of her § 403(b) contracts she chooses.  A beneficiary may aggregate all § 403(b) contracts she holds as a beneficiary of the same decedent.  See 26 C.F.R. § 1.408-8, Q&A-9.

 

Because a plan’s administrator might not know whether a participant or a beneficiary has § 403(b) contracts beyond those held under the plan, some plans might not compel an involuntary distribution to meet a § 403(b)(1)/§ 401(a)(9) condition.

 

bveinger, none of this is advice to you or anyone. 

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If there is a fee to process the distribution, some recordkeepers will allow you to "fee out" the account.  For example, our TPA firm charges $50 to review/process distributions.  So some  recordkeepers have allowed us to notify them via a form or spreadsheet of any participant with less than $50 where whatever is in the account is sent to us as a distribution fee and that effectively closes out the participant's account.

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But a plan's fiduciary might be reluctant to instruct such a distribution if the beneficiary had not requested a distribution and the plan's governing documents do not provide an involuntary distribution.

 

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