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A 401(k) plan has many participants making very small contributions - $4-$5 a week in some cases. The plan sponsor records participant termination dates with the recordkeeper after each pay period. The recordkeeper has taken it upon themselves to forfeit small balances for former employees after the plan sponsor enters their termination date. They are forfeiting employee pre-tax and Roth salary deferrals without any direction from the plan trustees and with no apparent reason other than it's their "policy" not to cut a check for less than $25. In one instance they forfeited $80 of an employee's pre-tax salary deferrals - about $20 at a time because the plan sponsor made 3 $20 deposits after the employee's termination date was entered. All of the others we have found were $10 or under. Has anyone out here come across this practice and is there anything I'm missing that would allow it? The plan document certainly doesn't say a small balance can be forfeited vesting be damned. I'd feel better about it if some of the experts on BenefitsLink have experience with similar approaches by recordkeepers and/or have had the IRS or DOL approve the practice.

Initially, our client indicated they were about to be acquired (transaction date TBD in the near future). The client had asked my firm to conduct a "force-out" distribution mailing to thin out the plan before merging it to the Acquirer, and also to give some large-balance terminees an early head's up changes were brewing and to consider moving their retirement assets more directly under their individual control. Thus far into the force-out process, one partially-vested participant voluntarily took a rollover distribution of her net account balance. Now, the decision has been made to Terminate the plan prior to the corporate merger taking place. In my mind, this sort of nullifies the force-out process, and I'm sure the client would be okay, in effect, not forcing anyone out under the original force-out time frame (3/15/2013), and allowing the full vesting and plan termination distributions to occur somewhat later. My question is: Do we make whole the one participant that received a partiallly-vested distribution by reversing the forfeiture and distributing it to her IRA? That seems like the conservative thing to do, given 1. it coincides with the plan termination and would give the appearance of an ill-intended maneuvering of the plan sponsor (not their intent) and 2. people talk and so many other terminees that chose not to do anything will become fully vested it may lead to a complaint. Or, in general, what is the guidance or regulation regarding forcing out partially-vested terminated participants with a pending plan termination? Thanks!