failure to follow $1000 cash out rule

[Gudgergirl]

I have a 401(k) plan that has a $1000 cash out rule - i.e. no consent is required to cash out a person with less than $1000 in his account. The wording of this provision is mandatory - the plan is required to cash out such participants.

However, the plan has been following its own cash out rule and only cashing out participants with less than $200account balances. Is anyone aware of a correction method for this type of error? I guess it is an operational error since the document was not followed, but it seems like a rather benign one to me. Any ideas?

[J Simmons]

I have a 401(k) plan that has a $1000 cash out rule - i.e. no consent is required to cash out a person with less than $1000 in his account. The wording of this provision is mandatory - the plan is required to cash out such participants.

However, the plan has been following its own cash out rule and only cashing out participants with less than $200account balances. Is anyone aware of a correction method for this type of error? I guess it is an operational error since the document was not followed, but it seems like a rather benign one to me. Any ideas?

I think you'd have to amend under EPCRS, retroactively, to reduce the $1,000 to $200, and apply it going forward in all cases. 'Go forth and sin no more' after getting the retroactive amendment in place. Whether you'd have to VCP to do this, I do not recall--and it may depend on how many former employees have been affected by the failure over how many years.

Also, this is a failure of the ERISA fiduciary duty to follow the plan document. So VFCP through DoL would be a good idea. This was an issue that I advised a plan with regards to a DoL audit a few years back, so I know it is of concern to and on the radar of the DoL/EBSA.