Amending Plan's Cash-Out From $1,000 to $5,000

[401 Chaos]

Any problems or particular concerns with a 401(k) Plan amending the plan to increase the cash-out threshold from $1,000 to $5,000 (along with adopting appropriate automatic IRA rollover procedures) and then cashing out all the former employees with balances between $1k and $5k? We've been told that it is fine to apply the new limit prospectively to all accounts (including those accounts below $5k that have been in the plan for a number of years because of the old threshold). Just wanted to be sure there is no protected benefit or rights associated with the old limit. Thanks.

[Belgarath]

Yeah, you are fine. There's an exception permitting this - see 1.411(d)-4, Q&A-2(b)(2)(v).

[david rigby]

Possibly faulty memory: the IRS has stated that the cash-out limit can be changed, up or down, anytime as long as you keep it under $5K.

It would be prudent to verify in the regulation.