Involuntary cash-outs at latest commencement date?

[Guest cac1134]

I understand Sec. 2550.404(a)-2(a)(1) approves an automatic rollover only of a mandatory distribution described in Sec. 401(a)(31)(B) (distributions in excess of 1K but less than or equal to 5K)

What can happen in the case of a participant who terminates employment and leaves his or her account balance in the plan and then reaches the "latest commencement date" under the plan (and under ERISA Sec 206(a) and Code Sec. 401(a)(14).

If the plan sends out distribution election forms and the participant makes an election (distribution or direct rollover) then, ok.

What happens if the participant fails to make an election? My thinking is that there can be no involuntary distribution of accounts in excess of 5K even under the latest commencement date rules. The plan just maintains the account and researches the applicable state law unclaimed property statute.

Any thoughts?

Thanks.

[Guest cac1134]

Now I see where the latest commencement date rules trump.

If the present value of an accrued benefit under a retirement plan exceeds $5,000, the benefit cannot be immediately distributed without the participant’s consent. IRC Section 411(a)(11)(A). Once a distribution is no longer “immediately distributable”, participant consent is not required. For this purpose “immediately distributable” means the date the participant has reached normal retirement age. Reg. Sec. 1.411(a)-11©(4). Therefore, a distribution may be made without participant consent after the participant reaches age 65, after the participant’s death and to satisfy the minimum required distribution rules. However, the IRA creation safe harbor does not extend to such distributions, so the plan can distribute to the participant without his or her consent but can't set up an IRA to receive the distribution.

[QDROphile]

You might want to read the IRS notice on the subject of automatic rollovers before you reach that conclusion. The notice uses a broad definition of madatorry distribution. Was it intentional? Is it supported by the statute?

[Guest cac1134]

I see how Notice 2005-5 uses the term mandatory distribution broadly, but I am bothered by the preamble to the final regs at 2550.404a-2. See paragraph B.1., third paragraph, penultimate sentence: "With regard to distributions greater than $5,000, the Department is not prepared to conclude that the framework for safe harbor relief, specifically the prescribed investment producs, is appropriate for distributions in excess of the amounts otherwise subject to the automatic rollover requirements of section 401(a)(31)(B) of the Code."

I would argue prohibited transaction relief is clearly not given, so notwithstanding a broad interp under Notice 2005-5, I wouldn't set up a rollover IRA. Would I send a check? Looking at PPA lost participant rules, now.