Mandatory Cash-Out Question--Unresponsive Accounts Under $1000

[TPAJake]

Situation is you send out the notices & get nothing back in 30 days. You review the terminated Participant account & it's under $1000. You can't send a check to nowhere & most providers won't build IRA's under $1k.

Does anybody have a go-to provider that CAN build an IRA under $1000 & get these people out of the Plan with a Trustee to Trustee rollover? Full disclosure--We have one such provider now, but I'd like options...

[Doghouse]

In my former position at a TPA, most of our plans had provision for automatic rollover all the way down to $0. And then we used Penchecks for fulfillment. As I recall, they didn't have a problem with it, but the account might quickly be consumed by fees.

[QDROphile]

Make sure the plan allows distribution of the small amounts to an IRA. Your description raises questions. A prohibition might arise from negative implication. The plan administrator is responsible for interpretation.

[Doghouse]

Yup, that's why our plans had automatic rollovers for $0 - $5,000. I really miss 100% tax withholding

[GMK]

For my general education, did the 100% withholding (which looks like a great option in most cases) go away, because the IRS didn't want to deal with receiving withholding for a person who it turns out has been dead for years, or some other reason? Thanks.

[pmacduff]

IMHO I don't think the 100% withholding was ever really sanctioned (so it didn't really "go away".)

Many years ago It was a way to get the balance out of the Plan and the funds to the participant, who hopefully got a nice surprise when they filed their taxes.

If memory serves, somewhere along the line it became stated that it was not a valid way to remove a lost participant account from a qualified plan.

[Kevin C]

We also do auto rollovers from $0 - $5,000, but we use Millennium Trust.

Besides there being no authority for doing 100% withholding, I imagine the IRS doesn't like it because there would be tax issues for individuals who had 100% withholding. If you can't find them to pay them, you can't find them to send the 1099-R. They would end up having unreported taxable income and additional withholding that they don't include on their tax return, because they did not get a distribution check or a 1099-R.

[TPAJake]

Seriously, I would never use that 100% withholding method--If I can't send a check to nowhere then I can't send a 1099-R there either.

Our plan language describes the automatic rollover as a contingency when Participants are lost or unresponsive & the current IRA vendor includes "we will find them" language in the Trustee agreement.

Any vendor recommendations other than Millennium Trust?

[Doghouse]

I would never use it today either, but it was good back in the day, especially before the automatic rollover rules came into being. And especially if the plan was terminating. It was never sanctioned by the IRS, it was one of those workarounds that used to happen, more or less below the radar. Then I think someone asked about it at an ASPPA conference Q&A with the IRS, and that was pretty much the end of that.

[BG5150]

Does anyone know of a decently priced locator service?

I always thought it was the sponsor's responsibility to first try to track down the account owners (with proper documentation, of course) before the rollover even happened.

In a former job we had one that was relatively cheap (maybe a dozen for $25?), but I've forgotten the name.

[ESOP Guy]

19 minutes ago, BG5150 said:

Does anyone know of a decently priced locator service?

I always thought it was the sponsor's responsibility to first try to track down the account owners (with proper documentation, of course) before the rollover even happened.

In a former job we had one that was relatively cheap (maybe a dozen for $25?), but I've forgotten the name.

I have used PBI before.

http://www.pbinfo.com/

I liked the service and price. 

I was talking to a Millennium Trust people earlier this week at the NCEO conference and they have a search service also.  I have no experience with them but they will telling us they can even find people who have moved back to Mexico.