Payout of participants with balance <$5,000

[Guest wallacea]

How much notice does an employer need to give to participants before directing the 401(k) administrator to issue a cash payout?

[Guest]

There doesn't have to be any notice really, other than that in the SPD or other communications. This should really be an automatic procedure.

[Wessex]

Keep in mind that although consent to distribution is not required, unless the benefit is $200 or less, the participant must generally be given an opportunity to elect a rollover. Only if the participant does not respond after receiving the 402(f) notice and an election form can a distribution be made.

[Guest kclark]

Is the automatic payout of terminated employees with balances<5000 an IRS requirement or is it a decision that is made by employer? Does the employer simply have the option of doing this if they wish to? Is it something that must be addressed in the plan document???

I couldn't find this in any of the regs.....any sites I can refer to?

Thanks for the help!

[Guest kclark]

looks like my entire messasge didn't get through......my questions was regarding the terminated employees with balances less than $5000. Is this required by the IRS or simply an option the employer chooses to follow?

Must this be addressed in the Plan Document?

Thanks!

[Alf]

The cash out rules are optional, but they have to be in your plan document in order to use them.

Code section 411(a)(11) contains the requirement that a participant must consent to any distribution if her account balance exceeds 5,000. So the rule is not that an involuntary cash out can be made at less than 5,000, but that an involuntary cash out can't be made above 5,000. 401(a)(7) requires the plan to meet 411.

[Guest CygnusX1]

I found this post and would like to solicit some additional elaboration. If the involuntary distribution of $5000 or less is elected in the document, is the employer "required" to force out those with balances of less than $5000 that have not responded to a rollover option? Would it be perceived "discriminatory" if not forcing out one individual and later forcing out another. Is there anything in the regs that say you must if the election is in the document?

[K2retire]

The regs you will find require that the plan be operated in accordance with its written document. So if the document says you must do it, you must either do it or amend the document.