Involuntary cashouts and annuity option

[AndyH]

Assume a plan is amended to reduce the involuntary cashout level to $1,000.

Does that mean that a plan must allow an annuity option if the pvab is $1,001?

Second question, when is the under or over $1,000 determination made? At the time of termination of employment, or at the time that a cashout would be made under the terms of the plan. What if the pvab is $1,001 this year and $999 next year, can it then be cashed out?

[Blinky the 3-eyed Fish]

Does that mean that a plan must allow an annuity option if the pvab is $1,001?

No, still $5K.

Second question, when is the under or over $1,000 determination made? At the time of termination of employment, or at the time that a cashout would be made under the terms of the plan.

The latter.

What if the pvab is $1,001 this year and $999 next year, can it then be cashed out?

Yes.

[AndyH]

I have a major law firm representing one of my clients that has taken a different position, that annuity options are required for a pension worth $1,001 because the $5,000 is simply being reduced to $1,000. And I am told that this is a consensus view; not that of one lawyer.

They are, I believe, reevaluating their position, but as of this morning an annuity option was required.

On the timing question I agree with you and am unclear as to the position of the law firm, who at first did not agree.

Thanks for the comments. Hope your AC is working. Maybe theirs is broken.

[Guest 401der]

The maximum threshold at which a plan can "cash-out" a participant without his consent and without offering him an annuity option is still $5,000. The new rules require mandatory IRA rollovers of "cash-out" distributions between $1,001 and $5,000 unless the participant elects a cash payment or direct rollover. Plans can lower the "cash-out" threshold by plan amendment to $1,000 to avoid the need to do mandatory IRA rollovers.

[AndyH]

That is well stated, thank you. No argument from me. Just the $950 per hour experts.