Forced distributions for those that do not respond

[Guest EPS2]

Plan has involuntary cash out provision under EGTRRA

Plan has automatic rollover provision for amounts over $1000 under the mandatory distribution amendment of code section 401(a)(31)(B)

Okay, I'm confused...

When a participant terminates with a balance under $1000 and over $200, and they do not respond to the paperwork it is my understanding that we are to force out their benefit in a cash payment.

If the benefit is over $1000 we are to force out their benefit using a direct rollover into an IRA

Of course, we can only do this if we have sent out the proper paperwork notifying them of this.

Does this sound right?

I'm looking at the amendments...one uses the term "forced cash outs" (EGTRRA), and one used Automatic Rollover of amounts over $1000.

I guess I know what to do with amounts of over $1000...roll them out into that IRA as long as the termed participant gets the proper notification.

It is not clear to me what to do with amounts over $200 and under $1000...can't rollover...so what??? Force out?

Please offer guidance...

Thank you.

[John Feldt ERPA CPC QPA]

When a participant terminates with a balance under $1000 and over $200, and they do not respond to the paperwork it is my understanding that we are to force out their benefit in a cash payment.

Correct, assuming your plan has force out (or cashout) provisions.

If the benefit is over $1000 we are to force out their benefit using a direct rollover into an IRA

Correct, assuming the overall cashout threshold was not lowered to $1000 when the plan adopted the 401(a)(31)(B) mandatory distribution amendment in 2005 or shortly thereafter.

Of course, we can only do this if we have sent out the proper paperwork notifying them of this.

If the plan requires involuntary cashouts, then the plan sponsor is required to send out the paperwork and is then required to force the payment. It is not a plan provision that can sometimes be followed, that would be an operational error (albeit a minor one).

It is not clear to me what to do with amounts over $200 and under $1000...can't rollover...so what??? Force out?

Yes, force out. Establish an administrative policy where, after a certain amount of time expires following the date when the initial paperwork is sent, a check is cut and sent out (be sure to withhold properly). In the participant's initial paperowrk you could explain the procedure a little to avoid participant surprise. Make sure the check gets cashed. If you need, make a procedure for handling uncashed checks that go stale.

[JanetM]

My advice if you don't hear back from the participant is to verify the address. Don't just issue the check and send it to last know address. Chances are you will end up with a large number of outstanding checks.

[Guest TCP]

What are viable solutions for a procedure for handling uncashed checks that go stale ?

[JanetM]

Hire a seach firm or gat a subcription to database for finding people is your best chance. I have never had luck with IRS letter forwarding.

[QDROphile]

"If the plan requires involuntary cashouts, then the plan sponsor is required to send out the paperwork and is then required to force the payment. It is not a plan provision that can sometimes be followed, that would be an operational error (albeit a minor one)."

Plan sponsors do not handle distributions. Plan administratores handle distributions.

[John Feldt ERPA CPC QPA]

Okay, technical point granted to QDROphile.

Many small plans define the Plan Administrator to be the same as the Employer, who is also the plan sponsor. But yes, you're right. Even when the plan language is that way, the Employer needs to remove their Employer hat and put on their Plan Administrator hat to do the distribution. Mine is a green hat.

[JanetM]

I agree QDROphile, but if record keeper sends notice and it comes back undeliverable it is wrong to send a check to that address knowing it will come back. We told out record keeper couple years ago to stop sending checks to known bad addresses. In 2005 one plan had almost 500 outstanding checks, about 75% were involuntary cashouts to folks with known bad address.

Now we get list of bad addresses and we (the company) work on finding these folks. We then do the involuntary cash out - after we find them.