Involuntary Cashout; Is this workable?

[AndyH]

Plan sponsor wants to amend plans to change existing cashout provision from voluntary to involuntary for 1K to 4.99K.

About 85 people would be cashed out and there would be trouble locating people and trouble getting signatures.

Is this viable? All of our other clients adopted the voluntary rule so I have not been through large scale forced cashouts. This client needs to get below 500 to avoid at risk status.

Is it common for financial institutions to accept the non-signature IRAs for non-cooperative participants? How are they set up and how are fiduciary or investment decisions handled?

What have others experienced?

[Belgarath]

After first blowing a giant raspberry to Congress and the DOL for this whole mandatory rollover foolishness (THBBBBBTTT)...

Seems a viable approach to me. Finding an institution that will handle them isn't necessarily all that easy, but there are some. Penchecks comes to mind. Most institutions (that I've seen) who will handle them just accept the last known address, etc, on the IRA app. Once the rollover is complete, the Trustee has no further involvement or fiduciary role. Their fiduciary role extends only to properly choosing a company or companies to handle the mandatory rollover IRA's.

The IRA's are typically set up in some sort of fixed interest account. Some of the literature I've seen from individual financial institutions requires that you let the camel's nose into the tent - for example, they say they will accept these piddling amounts of money, but only if every distribution kit for ALL participants has some sort of brochure on this company's investment portfolio options. Not that I blame them - if your are going to handle this accounts, you need to make money somehow. Others, such as Penchecks, charge a set fee or fees.

You might want to take a gander at IRS Notice 2005-5 and DOL FAB 2004-02.

[Kevin C]

I've done that with a couple of terminating plans that had participants who could not be located. The Trustee takes care of all of the paperwork. It was a fairly easy process.

For participants who can not be located, Notice 2005-5, Q&A 10 is particularly helpful.

[AndyH]

Thank you both. I'll look at the govt materials.

Any suggestions for a timeline? One letter, x days notice, followup threaten rollover, execute rollover?

Any financial orgs other then Penchecks (not that there is anything wrong with that but I'd like to give client a choice)?

[Belgarath]

We generally recommend 60 days, but you could probably use 30. We recommend a certified letter to the last known address. No response in 60 days, rollover.