Terminated 401(k) participant distribution.

[Guest tcunagin]

I have a participant in a terminated 401(k) plan that will not send back in the distribution election form. His balance is $5,004, over the $5,000 limit to cash out, and he is in contact with the trustee but they cannot get him to return the form. Is there any recourse?

[Guest Bud]

You can force participants out of a terminating plan as long as: (1) the plan does not provide for annuities and (2) the employer does not have any other plans. (Treas. Reg Section 1.411(a)-11(e)(1))

Assuming you don't have any other plans, send the participant a check (after doing the 20% withholding). Hopefully, the participant will cash the check and will be out of the plan. I don't know what do if he or she doesn't cash the check. I think under EGTRRA, you're supposed to open an IRA somehow.

[david rigby]

Caution. Several states also have mandatory withholding, in addtition to the federal 20%.

Also, before cutting a check, you may want to verify that the participant was given the notice about withholding.