Amend Plan to Eliminate Involuntary Distribution

[Guest erc]

Many practitioners/commentators have categorically suggested that amending a plan to eliminate involuntary cashouts is a "solution" to the default rollover IRA requirements. Am I missing something? The proposed solution would "work" for a plan that allows participants to elect to receive a distribution after termination of employment in any form available under the plan. These plan sponsors will simply have to weigh the "hassle" associated with maintaining small accounts vs. the "hassle" of the default rollover IRA requirements.

What about a plan that permits distributions to terminated employees prior to ERA or NRA only if the account is valued at less than $5,000? Admittedly, most 401(k) plans do not hold accounts to ERA/NRA, but I still have a number of profit sharing and defined benefit plans that are "true retirement plans". I thought the timing of the benefit payment (i.e. at termination of employment) was an optional form of benefit protected under 411(d)(6) and, accordingly, plan can't "take away" employee's right to receive payment at termination of employment (and plan sponsor doesn't want to amend plan to permit all terminated participants to receive immediate distributions or plan would already contain an immediate distribution provision). I guess plan could be amended to give terminated participants with small accounts the right to elect to receive a distribution. However, wouldn't this create separate benefit structures under 401(a)(4)?

Similarly, what about a plan that permits distributions in the form of a LSD only if account balance/accrued benefit is less than $5000? I thought LSD was a protected form of benefit. Again, I guess plan could be amended to give participants with small accounts the right to elect to receive a distribution in a LSD (and plan sponsor doesn't want to amend plan to permit all terminated participants to receive a LSD or the plan would already permit LSD for all participants). However, wouldn't this create separate benefit structures under 401(a)(4).

[No Name]

Admittedly, I'm replying just to move the topic back to the top. I'm also interested in what others think.

I can't see the forest for the trees on this one. I don't see a BRF issue. What you'd be removing doesn't seem to be a right. "If you don't elect a rollover, we're sending you a check and withholding".

[mbozek]

This issue has been extensively discussed under the 401k plan board. The plan can avoid any hassle in maintaining the accounts by charging an admin fee to the accounts of terminated participants to eliminate the cost to the plan or motivate the ee to remove the funds.