Increasing Mandatory Cash-Out Limit and 411(d)(6)

[Guest Grumpy456]

A DB plan sponsor reduced the plan's mandatory cash-out amount from $5,000 to $1,000 effective March 28, 2005. It did so at the time for a number of reasons including (1) it was unclear what the fiduciary obligations were with respect to amounts between $1,000 and $5,000 that were transferred to an IRA and (2) it was unclear whether there would be any such IRA providers. Now that both of those two issues have been resolved, the plan sponsor wants to increase the mandatory cash-out amount from $1,000 back to $5,000. Can the cash-out limit be increased by to $5,000 without violating 411(d)(6)'s anti-cutback rule (in the sense that participants may no longer be able to elect payment of their benefit in the $1,000 to $5,000 range as an annuity)? Thanks!

[rcline46]

The problem would NOT be the election of the participant because they can still elect any optional form of benefit. What they cannot do is ignore the election and leave the benefit in the plan. Ok, so the optional form of 'nothing' has been removed.

However, since the law permits the forced distribution, and the participant is losing 'nothing' then I don't see any cut-back. You car argue that the 'timing of distribution' has been removed but I would point out it is not removed for an affirmative election, only for inaction and of no consequence. Also the participant still has all of the optional forms once the benefit has been placed into their IRA.

[david rigby]

Does IRS Reg. 1.411(d)-4 Q&A2(b)(2)(v) help?