Incentives to take immediate distributions

[Guest slt]

I know that there are rules preventing forced payouts of benefits under a plan without consent (unless less than $5000 or a distribution that is not immediately distributable), but what would be wrong with giving a participant an incentive to his or her consent to an immediate lump sum payout? (E.g., cash incentive). Arguably, this wouldn't violate the "significant detriment" rule under 1.411(a)-11©(2)(i). Any thoughts or suggestions? Thanks!

[LIBERTYKID]

I have a similar question.  Can a cash incentive be provided outside of the plan to encourage cash out distributions?  

I hope this reply bumps this question up to the top.

[ESOP Guy]

I have not seen a cash incentive to take a distribution.

On the other hand if you do  all the documentation correctly I have seen plans that charge certain fees to terms that leave their balances in the plan.  These fees aren't charged to the actives.  It has been a while since I have worked on such plans but I seem to recall the SPD had to be clear about the fees.  The distribution forms have to be clear about the fees.  That seemed to help get the balances out of the plan. 

[QDROphile]

ESOP Guy:  True, but there is a relatively (measured in years) new disclosure requirement to let participants know what the consequences are of NOT leaving funds in the plan.  Both the DOL and the IRS are remiss in guidance about the disclosure, but one issue I think must be considered is that if a participant rolls a distribution (to avoid taxation) to avoid the imposition of plan expenses, the participant is likely to incur maintenance expenses in an IRA (typically small) and may be unable to get the best expense arrangement, even if the IRA investment menu is exactly the same as in the 401(k) plan, because the individual account balance does not qualify for the best rate.  That may be a significant financial factor.  An indication of significance is that failure to get the best available rate for a particular fund is about the only successful claim so far against fiduciaries with respect to construction of investment menus.  Of course, the disclosure will go over the heads of almost all participants, even if they read it.