encouraging terminated participants to take distribution

[Nancy D]

Hi group,

I'm a TPA of a 403(b) plan with multiple vendors and many terminated participants with account balances. Some of the participants are in individual contracts and it is a challenge to work with the vendors to pay those terminated participants with balances under $5K. Sponsor is wondering if they offer some type of incentive to terminated participants who take a distribution ( $100 gift card or the like).

Wondering what your thoughts are??

Thank you for any help/guidance you can give...

[Flyboyjohn]

Knee jerk reactions:

1. Not OK to offer financial incentive

2. If currently audited ERISA plan with under 100 terminated and audit expense has been problem consider spinning off terminated participants to separate plan to at least eliminate that expense

3. Alternatively if you have a way to hit participant accounts for plan administrative expenses adopt a policy of passing thru plan expenses (like audit fees) to terminated participants but not active participants

[mbozek]

How does the plan assess the fee against an individual annuity contract? I don't think the insurance co would allow the fee without the participant's consent. Why cant the plan just send a letter to the participant stating that the contact has been severed from the plan because of the participants termination of employment or other event as permitted under reg. 1.403(b)-6(b). Does the plan permit distribution of de minimus amounts?

[Nancy D]

Thanks for your responses, sorry for delay have been out of office. Mbozek, you are right that's what we have found is that the insurance companies do not let us assess a fee. The plan does allow for distribution of de minimus amounts, but we are finding insurance companies will not honor that provision as it is not part of the individual contracts. We have tried telling the participants they must take a distribution, but when they contact the insurance companies they are told they don't have to.

Flyboyjohn, thanks to you too. My kneejerk was no you can't do that, but then I thought if it is outside of the plan??? Spin off is a good idea, I'll pursue that option.

I really do appreciate your help.

NancyD