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What to do with a participant who doesn't want to be paid out?


Santo Gold

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The employer is terminating the company's 401(k) plan. One participant has over $5,000 but refuses to sign any paperwork regarding distribution of his account balance. I don't know why. Since we cannot cash him out (over $1,000), would we treat him as we would a lost participant, showing that we went through the steps to locate and pay him but to no avail. Then, having done that, just set up an IRA for him, roll his money over to that institution, and be done with him?

Thanks

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Pension in Paradise's query is important because of Treasury Regulation 1.411(1)-11(e).

(e) Special rules--

(1) Plan termination.

The requirements of this section apply before, on and after a plan termination. If a defined contribution plan terminates and the plan does not offer an annuity option (purchased from a commercial provider), then the plan may distribute a participant's accrued benefit without the participant's consent. The preceding sentence does not apply if the employer, or any entity within the same controlled group as the employer, maintains another defined contribution plan, other than an employee stock ownership plan (as defined in section 4975(e)(7)). In such a case, the participant's accrued benefit may be transferred without the participant's consent to the other plan if the participant does not consent to an immediate distribution from the terminating plan. See section 411(d)(6) and the regulations thereunder for other rules applicable to transferee plans and plan terminations.

...but then again, What Do I Know?

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Guest Pensions in Paradise

WDIK - thanks for posting the regulation. That was my intent but I didn't have time.

Santo - Yes, since the plan is subject to QJSA the plan sponsor must purchase a QJSA if the participant does not make an election. I'd send a letter to the participant notifying him that if he doesn't respond in X days then the plan will purchase an annuity on his behalf. Most people don't like insurance companies (no offense to insurance companies!), so that should motivate him to return his election forms.

One other option you may want to consider to "motivate" him to return his forms. After you have cashed out all other participants, tell him his account will remain in the plan until he makes an election, but all plan expenses will be charged to his account. In effect, he will be paying to keep the plan running.

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  • 6 months later...
Guest mydayjob

And if the plan is not subject to the J&SA rules, can you just send him a check for the account balance less applicable withholding--provided you are sure of his address?

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