402(f) Notice for distributions under $200...Required???

[Guest wolfman]

Distributions of amounts less than $200 are not required to be eligible for direct rollover and are not subject to mandatory withholding. The language in the 402(f) notice does not apply to these situations. Therefore, shouldn't plan administrators be able to immediately make distributions to terminated participants with less than $200 vested account balances without providing the 402(f) notice and without waiting 30 days? It would seem a cover letter with the check explaining the 60 day rollover rule would suffice.

[TBob]

This is a really old post that no one replied to. I have read other posts that have indicated that you are still required to provide a notice before involuntarily cashing out a balance of less than $200.00. Other reading has suggested that we would not need to provide a notice. Can anyone clarify for me if a notice is required in this case and is it the 402(f) notice or some other notice?

[Belgarath]

Kind of an interesting question. See 1.401(a)(31)-1, Q&A-11.

It seems to me that if, as in the case Wolfman originally discussed, the plan does not permit rollovers of <200, (which is permissible) then no 402(f) notice need be distributed to those participants.

However, if the plan DOES permit rollovers of these small amounts, since they are in fact eligible rollover distributions under 402©, (because 402© does not exempt these amounts from the definition) then the notice must still be provided.

[Belgarath]

Bringing this back up, because I think my original response was a severe braincramp. I think the 402(f) notice requirement still exists, even though the plan doesn't have to offer a direct rollover option. I'd love to see some official guidance that says otherwise, but I'm not aware of any.

[Belgarath]

Ok, now I'm just curious. While I still think a strict reading of 402(f) requires a notice for amounts <$200, I also wonder what everyone out there actually does in the real world. Do you provide the notices, or not? Do you utilize a "reasonable" interpretation that the notice isn't required of the plan doesn't allow a direct rollover option for amounts <$200?

[K2retire]

It was my understanding that the Special Tax Notice is required for all distributions. If that's the case, why not include the 402(f) notice as well?

[Bird]

We provide the notice. In our case, there is some kind of paper correspondence with virtually every distribution, so including the notice is not an extra step.

[Belgarath]

Ok, then it becomes a procedural question. Do you send out a distribution kit and wait for an election, OR, if you determine the notice isn't required, do you just cut them a check, but also include the notice so they know they can roll it over if they want to?

[Bird]

Ok, then it becomes a procedural question. Do you send out a distribution kit and wait for an election, OR, if you determine the notice isn't required, do you just cut them a check, but also include the notice so they know they can roll it over if they want to?

Cut the check and mail with the notice (or at the same time if coming from different places).

[J Simmons]

Tripodi says that the 402f notice is not required for distributions that total less than $200. EOB 6:D:2.c.3).

[Mike Preston]

I agree that the 402(f) notice is technically not required. However, there is some information in that notice (or information which is similar to information which is in that notice) which is potentially helpful to a recipient of less than $200. At one point I went through the 402(f) and isolated what I thought was potentially helpful. Like others have already mentioned, our process is actually made simpler by having a Notice go out with all distributions. The Notice for those with less than $200 includes four sections and easily fits on a single page:

60 day rollover option

Additional 10% tax if you are under Age 59 and 1/2

General Rules for Alternate Payees

General Rules for Beneficiaries

I can't imagine that it really makes much difference to include such information, but it is like chicken soup.

[Cynchbeast]

On 9/2/2010 at 8:33 PM, J Simmons said:

EOB 6:D:2.c.3

Can someone please steer me toward this cite?

[BG5150]

It's ERISA Outline Book

Chapter 6

Section IV (missing from the cite)

Part D

# 2.c.3