Never cashed out people with less than $1,000

[BG5150]

The plan states that if a participant's account balance at separation from service is less than $1,000, "the Plan Administrator MAY direct the Trustee to make an immediate lump sum distribution..." [emphasis mine]

It take the "may" as this being optional. The plan administrator has yet to use this provision, but there are several old balances and a few newer ones (due to a missed deposit some years ago), and he would like to zero these accounts out.

My questions are: did the administrator do anything wrong by waiting? And, how quickly do these types of accounts have to be liquidated in the future? Can he just periodically sweep them out? Some of the accounts won't even get a check because of the distribution fee being higher than the account.

[Bird]

I assume it's a GUST document, and yes, it's ok. But your EGTRRA document will have to specify if you will or won't.

[J Simmons]

I assisted an ER facing a DoL audit. The GUST II plan language provided that the trustee would payout benefits when and as instructed by the PA. The plan also provided that a distribution of vested benefits totaling more than $5,000 could not be made before age 62 or if later NRA, without the consent of the former EE. There was a March 2005 amendment reducting that $5,000 threshold to $1,000.

There was no 'shall pay out' language. The trustee waited for PA to instruct when to make payout, and the plan did not specify when the PA must give such instruction or when such a payout from the plan should occur--just not before NRA or 62 without the former EE's consent.

Nevertheless, the DoL raised and persisted that such was a problem, despite our pointing out that the language of the plan did not require payout. "Failed to ensure mandatory distributions were made in a timely manner as required the by the plan documents".

[QDROphile]

That is because timing of distributions cannot be at the discretion of the plan adminstrator -- a basic principle of qualified retirement plans. The provisions about "may distribute" are poorly worded and must be interpreted in a compliant way.