Change of force out back to $5,000

[Jim Chad]

I changed the force out level from $5,000 to $1,000. Are there any problems in changing it back to $5,000?

[rcline46]

Other than the fact it is illegal? Force outs over $1,000 must be put into an IRA.

[Kevin C]

I wouldn't call it illegal. You can change the cashout limit back to $5,000.

However, as rcline46 pointed out, involuntary distributions from $1,000-$5,000 must be rolled over to an IRA. You will need to amend for the automatic rollover rules. The Trustee(s) need to select an IRA provider and sign a contract with them. Then, everything needs to be disclosed to participants.

[Bird]

You want to change so you are NOT forcing out under $5,000, right? No, I don't think there's a problem.

[Jim Chad]

I'm sorry my question wasn't more clear. I changed the force out level on many plans to $1,000 because I did not have an IRA provider, back then. I do now. And I want to change it back to $5,000 with all amounts over $1,000 going to an IRA.

Thank you to every one who responded. Especially, thank you for reminding me that it needs to be set up with the IRA provider and disclosed to Participants.

[masteff]

And the anti-cutback rules such as reg 1.411(d)–4, A–2(b)(2)(v) specifically allow amendments raising or lowering the limits for involuntary distributions made pursuant to code section 411(a)(11). So from that perspective, your idea is fine.

Note that the automatic rollover rule is in code section 401(a)(31)(B) (which references 411(a)(11) but isn't controlled by it).

See also Notice 2005-5 (on page 337 here).