Involuntary Cash Outs-Document and practical considerations

[Guest spanarkle]

We restated all of our plans for GUST and EGTRRA and the adoption agreement we used had a choice to distribute as a lump sum or rollover into an IRA. My understanding is with the latest regulations, a lump sum is no longer an option. There are no de minimus amounts, everything is supposed to be rolled into an IRA.

1. Are we required to prepare an amendment for the adoption agreement to take out this choice?

2. Has anyone actually rolled a balance of less than $100 into an IRA? If so, can you give us a name of who accepts them?

[WDIK]

The automatic rollover requirements apply to distributions that exceed $1,000.

I believe that a model amendment was recently issued, but if you are using a prototype document, the vendor should provide you with an appropriate amendment.

[austin3515]

IRS Notice 2005-5 has the model amendment.

[E as in ERISA]

And just to make sure we're clear here...when a participant is going to be forced out, they first must be given an explanation telling them that they can take either a lump sum or roll over to an IRA.

The rules only change what happens when participants actually fails to make an election. Amounts under 5,000 but over 1,000 are rolled to an IRA. Amounts under 1,000 are still paid in cash as before.

[stevena]

Anyone have a clear idea as to when these need to be done? In a daily valued plan, do these have to be done as soon as someone terminates employment, on a rolling basis? or can you wait until year end, or every six months, or whatever, and roll everyone into an IRA who hasnt responded in that plan year? I read the IRS notice but I am still not clear.

And how long do you wait until someone is deemed to "not respond"? WOuld that be part of your policy, and it will be different for every plan? or is there some magic time limit (do we use the 90 days?)

am i missing where these issues are addressed?

[MWeddell]

The timing of the mandatory cash-outs must follow the plan document. No employer discretion is allowed.

The distribution should occur 30-90 days after the participant receives the 402(f) notice. You have to wait the 30 days before you deem the participant to have not responded.

Both of these issues are addressed in regulations under IRC 411. Neither one was mentioned in the latest IRS guidance.

Hope that helps.