Went to a Corbel conference....

[stevena]

Was wondering if anyone had heard the news that there was guidance being issued next month that starting in January 2005, any employee who is terminated with money in the plan MUST be forced to roll to an IRA. Including terminated lost participants, or participants who dont answer election notices sent out. ALL terminated employees. Leaving money in the plan under $5k was not going to be allowed at all, even if the employer does not want to force out employees. According to speaker was only accounts $1-5k but I just cant imagine how this is going to work.

It was a Corbel seminar, I came back to the office and told everyone but they dont think this could possibly be. I cant find anything proposed on the DOL site, has anyone heard anything??

[Guest ActuaryWannabe]

What the heck...

It was part of EGTRRA with an effective date delayed until the issuance of regulations.

[mbozek]

Provision only applies if plan has cashout for amounts between 1-5k. Plan can limit involuntary cashouts to amounts not in excess of 1k to avoid having to transfer assets to IRA.

[Tom Poje]

there have been lots of articles about this recently. these are just a few.

everything is proposed at the moment, but will probably be finalized shortly.

all you have to do is a google search on requirement for automatic rollovers and you will find a lot more

http://www.mellon.com/hris/pdf/fyi_03_19_04.pdf

http://www.benefitscounsel.com/erisaarchiv..._rollovers.html

http://www.seyfarth.com/db30/cgi-bin/pubs/032204.pdf

[Harwood]

http://www.dol.gov/ebsa/regs/fedreg/proposed/2004004551.pdf

[mbozek]

The real beneficaries of this provison will be the states since assets transferred to IRAs are subject to escheat under state abandoned property laws between 1-3 years after the funds are deposited in the IRAs.

[stevena]

Thanks, everyone...I was looking for those proposed regs everywhere. I think we knew about the automatic rollover rules, I just didnt realize that employers HAD to do it, even for people who were not considered "lost" participants.

Thanks for the links!

[Brian Gallagher]

Automatic cashout rule have to be written into the plan, don't they? On our document, the sponsor can require signatures for all distributions regardless of balance.

[Theresa Lynn]

It also does not apply unless the particpant fails to make a contrary election, like a single-sum distribution or a rollover election. So, for practical purposes, it may not have such a broad effect--most participants will submit an election for a single sum distribution or choose an IRA if they know that it will be rolled over to an IRA of the employer's choosing...unfortunately for those of us who are advocates for financial education and savings education, it may just mean more cashouts and money spent!

Theresa Lynn

[stevena]

Clarifying again, if my document says that employees MAY be cashed out if they have less than $5000, then I dont have an option any longer to allow employees who have between 1000 and 4999 to keep thier funds in the plan, right? (I have a ton of clients who allow their employees to keep their money in the plan, they are the same million employees we send benefit packages to every year, and they never respond...they are happy with their funds right where they are. And they all have around 1-5k)

So my option is to either run around setting up a zillion IRA applications for my trustees to sign, or, to go back to our GUST documents and change the provision that says they MAY be cashed out if they have less than $5000. If I change the provision saying they wont be cashed out regardless of balance, does this problem go away?

[Alf]

I think you have other issues. The "may" language is impermissible employer discretion as to distribution timing in my book. On your original issue, sponsors will not longer be able to make involuntary distributions directly to participants. If you want to make involuntary distributions, they have to go in IRAs.

[mbozek]

The employer can avoid transferring the account balances to IRAs by limiting mandatory cashouts to account balances of no more than $1000. The employer can do direct rollovers to IRAs for amounts in excess of $1000 upon the employee's request.