Involuntary Distributions & age 62/NRA

[Guest SuzieQNEC]

I"m having a hard time understanding what a DC plan is allowed to do for a terminated participant who has left their account balance which has been greater than $5000 since terminating in the plan and the participant reaches the later of age 62 or normal retirement age. Can a plan distribute a balance at that time that exceeds $5,000 involuntarily at that age?

[J Simmons]

Yes, unless the plan says otherwise.

[Guest SuzieQNEC]

That being the case, is the plan restricted to distributing it directly to an IRA? Also, do all the standard notification requirements apply (30-180 days prior, etc)? Is there a common practice of doing this?

[J Simmons]

That being the case, is the plan restricted to distributing it directly to an IRA?

Not unless the plan required that. The auto rollover IRA rules apply to force out distributions to those former employees younger than age 62 or if later, NRA, with more than $1,000 but not more than $5,000.

Also, do all the standard notification requirements apply (30-180 days prior, etc)?

As to form of payout--lump sum, direct rollover, QJSA--yes. As to right to postpone payout, not required by pension law. If the plan gives the employee the right to affirmatively postpone payout, such as to one's required beginning date for RMD purposes, it would be good form to give them a notice of that opportunity.

Is there a common practice of doing this?

Fairly common in my experience, yes.

[MWeddell]

In my experience it is more common for a plan not to force a distribution (above the $1,000 or $5,000 de minimis threshold) to a terminated participant before age 70½. One has to read the plan document to see if the plan is forcing out distributions upon age 62 or age 65 but that doesn't seem to be the majority practice.