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Small balance force-outs


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Like most TPAs we have a combination of record keeping platforms and brokerage account clients.  Distributions for record keeping platform plans are certainly easier.  brokerage accounts and DB plans not so much.

Is anyone willing to share some processing tips?  The force out process is VERY time intensive - identify, send communication with forms, returned to sender, use locator, send again, and then when no response, send funds to IRA or issue check to last known address, and then deal with uncashed checks.

I'd like to get the distribution form and tax notice for all plans into the hands of the client (and online instructions when applicable) so plan sponsor can hand out at last day of employment.  Therefore, the notification has gone out and they can be forced out say in 60 days to be safe.  Still could be lots of follow up.  We do almost all the work here but I'd like to shift as much work to the plan sponsors as possible.  Reason - almost can't charge enough for handling distributions.  We also issue distribution checks, deposit taxes and prepare 1099-Rs for those not on record keeping platforms.

Tom

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I'm an HR manager (client of a TPA but did 401k recordkeeping back in the stone age of mainframes right up until things went daily) and part of my exit interview with employees is going over their balance and providing the distribution form and Special Tax Notice in that email.  These were provided by my TPA for our usage.

Many times I explain to small balances that if they leave the form completed with me, I can process and get them a check/direct deposit a few weeks after their last paycheck. It seems to work about 80% of the time.  But my employees are lower paid, non-profit employees so they need all the $s they can get.  

My goal is to stay a small plan and not need an audit....and to not lose small balance participants.  But the client does also need to stay on top of it if you can get them to add it to their exit interview/meeting.

 

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23 hours ago, hr for me said:

Many times I explain to small balances that if they leave the form completed with me, I can process and get them a check/direct deposit a few weeks after their last paycheck. It seems to work about 80% of the time.  But my employees are lower paid, non-profit employees so they need all the $s they can get.

I would be careful about that.    Do you also explain to them they can also roll over the funds to an IRA or another qualified plan?

They may take your explanation to fill out the form now as advice to take the lump sum distribution.

Could that make you an unwitting fiduciary?

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