Small Amount Distributions

[Lori H]

a plan wrote checks to 8 participants who did NOT cash them. The largest amount was $387.92 and there were 5 checks that were for less than $2 The plan can remove them for plan purposes, yes?

[david rigby]

Your use of "remove" might be ambiguous. Perhaps a bit more context?

[My 2 cents]

For purposes of discussion, let us assume that the question involves dropping them from the 5500 count (and PBGC count if a defined benefit plan) and excluding any liability for their benefits. No violence is presumed to be implied.

[Lori H]

the plan sponsor sent them the checks, the participants did not cash them. Can they be removed from the plan as for 5500, participation summary and all plan purposes? I am thinking yes. This is an ESOP.

[J Simmons]

I think you can "remove" them. Delivery of the checks transfers power over those funds from the Plan trustee to the individual distributees. A distributee can at any time go negotiate the check and be paid. In the law of negotiable instruments (applies to checks), the delivery of a check satisfies the underlying obligation (such as here, the benefits payment obligation), unless and until it is dishonored by the drawee bank, at which time the obligation is revived. Barring the Plan trustee putting a stop payment on the checks, or the funds in the bank account against which drawn being depleted so that there is not sufficient funds, the delivery of the checks is the act of payment of the benefits.

[BG5150]

But how does the Trustee know the checks were deliverd?

They could still be in a mail sack put in Jerry's storage space by Newman.

[GMK]

Lori - One thing we found that helps in getting participants to cash these $2 distributions is to explain to them (in a call, e-mail, or letter) that it's a hassle for the Plan if they don't: extra recordkeeping, reissuing stale checks, etc.

Usually, they initially take the attitude that $2 is kind of a joke, not worth bothering about, but once they understand the administrative situation, they almost always cooperate and cash the 'stupid check.'

And, as JSimmons points out, cash the check or not, they are no longer participants (assuming the check was a cash out of their vested balance).

[Guest Jayne Fahlen]

Millennium Trust Company offers an automatic rollover solution for un-cashed checks.