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To each his own. Mandating a provision for the convenience of the recordkeeper seems to me to be a bad business decision, and one that should weigh in on the fiduciaries' decision on who to engage for those purposes. That said, having "defaults" clearly is needed to manage the volume of changes. We took the position that if the plan had a $5,000 cash out limit, we would "default" them to $7,000, with ample opportunity to opt out of the default and select a different (lower) limit. We "defaulted" all others to staying at the limit they had in their plan (and most were $1,000 to avoid the IRA requirement). We did have some opt for something different than the defaults (both of them), but not many.

FWIW, this isn't me. 😁

If one translates the communication to what might (depending on the service agreement) be arguably legitimate: The service provider offers its service to support your plan’s provision for a small-balance involuntary distribution only if your plan’s provision sets its condition at the maximum amount ERISA and the Internal Revenue Code permit. Many service agreements include provisions designed to support service changes. If so, the service recipient’s choices might be: 1) Fall in with the recordkeeper’s business preference. 2) Change the plan to omit a provision for a small-balance involuntary distribution. 3) Don’t change the plan, but accept that the recordkeeper will perform its services applying the maximum amount. 4) Find another recordkeeper. 5) Administer the plan without a recordkeeper. Many service recipients will find choices 3-5 impractical. If I were to advise a plan sponsor (one that also serves as its plan’s administrator and trustee) that received this communication, my advice might be grounded, in some (not all) meaningful parts, on (1) whether the service provider has a contract right to treat the service change as accepted if not expressly rejected; (2) the service recipient’s overall working relationship with the service provider; (3) whether the service recipient has bargaining power; and (4) whether it is feasible for the service recipient to find a recordkeeper that would behave better.

I think your answer is found in this similar thread just started. I think you will need 3 things - #1 Refunds with earnings. #2 Form 5330 #3 1:1 QNEC equal to the total refunds allocated to eligible NHCEs

If the person is not a 5% owner then their required beginning date is generally based on the later of the applicable age or their actual retirement. Plan termination prior to one's retirement does not trigger an RMD based on age alone. BUT, consult the plan document as some plans (but not many) base their RMDs on age alone without consideration to retirement whether or not a 5% owner. and it's 4/1, not 4/30

I have been away from this sort of admin for years but my recollection is (1) you can refund excess by 3/15 (avoid excise tax), (2) refund after 3/15 but before 12/31 (incur excise tax), (3) provide QNEC to pass test if current year testing, deposit by 12/31, or (4) if you do not correct by the end of the following year then a permissible EPCRS self-correction method is what you describe in (2). https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-the-plan-failed-the-401k-adp-and-acp-nondiscrimination-tests

Before one suggests asking the Labor department to clarify what “with a balance” means, consider the proverbial saying: “Be careful what you wish for, . . . .” Or another practical caution: “Don’t unnecessarily ask a question if you’re not sure you’ll get the answer you’d like.”