Negative election of direct rollover

[Guest allisonperry]

I am dealing with a situation in which one company with a 401(k) plan is purchasing another company with a 401(k) plan. It appears that Reg. section 1.401(a)(31)-1, Q&A 7 permits a plan (after giving notice and if no affirmative election is made) to rollover a participant's account balance into another plan without the participant's consent (in effect utilizing a negative election). Has anyone ever tried this, or does anyone have any insight into the matter? Note: Some participants will have account balances exceeding the mandatory cashout limit of $5,000. Thank you in advance for your help.

[JanetM]

You don't need participants permission to merge plans. Are you saying you are giving them a choice to take cash, roll to IRA or rollover to the employers plan?

[Guest allisonperry]

We are not merging the plans. The transaction causes a termination of employment which is a distributable event. The participants are given an option to leave the account balance in the plan, take cash, or roll over the account balance into the new employer's 401(k) plan or into another qualified plan. The default if they do not return the election form will be to roll over the account balance into the new employer's 401(k) plan.