Mandatory distribution less than $1,000

[LLM]

Our plan document allows us to set the threshold for automatic rollovers below $1,000. We are considering lowering the amount to reduce the number of cash-outs, which sometimes become unclaimed checks. 

Anyone else using a lower number? Results?

Is there any number considered too low?

[My 2 cents]

4 hours ago, LLM said:

Our plan document allows us to set the threshold for automatic rollovers below $1,000. We are considering lowering the amount to reduce the number of cash-outs, which sometimes become unclaimed checks. 

Anyone else using a lower number? Results?

Is there any number considered too low?

This must be a defined contribution plan - at something like $70 per participant having to be paid to the PBGC each year, you would surely want to cash out all you could if it were a defined benefit plan!

Even in a defined contribution plan, there may be plenty of incentives to cash out as many little accounts as possible.  Perhaps try to make all small lump sums voluntary but allow immediate lump sums in all instances where the amount is below $5,000 and make sure that you make the offer to pay it whenever you can.  If you can't get an OK from the participant, not issuing a payment would not violate the plan provisions, and you would seldom wind up with unclaimed checks if participants have to ask for the lump sum payments.  Any time the lump sum is big enough ($200?), you have to give them a chance to roll it over to an IRA, so you would normally be looking for a response anyway on all but the very smallest amounts.

[ETA Consulting LLC]

I have a plan where the auto rollover amount is down to zero.  I was taken back by it at first, but it grew on me.  I just hate when these BS Platforms make the distribution request form so convoluted that it serves as a deterrent from having the participant complete it for a distribution.  But, from a operational perspective, you cannot go wrong. Once the participants at $5,000 are notified of their rights to a distribution (and of the rollover if no election is made), the job is done.  It is often unfortunate to roll over $10 to an IRA that will ultimately get eaten up be fees, but that is neither here nor there (from an operational perspective).

Good Luck!

[card]

"Is there any number considered too low?"

On the ERISA side, the DOL's regs specifically allow automatic rollovers of $1,000 or less. See §2550.404a-2(d):

"(d) Mandatory distributions of $1,000 or less. A fiduciary shall qualify for the protection afforded by the safe harbor described in paragraph (b) of this section with respect to a mandatory distribution of one thousand dollars ($1,000) or less described in section 411(a)(11) of the Code, provided there is no affirmative distribution election by the participant and the fiduciary makes a rollover distribution of such amount into an individual retirement plan on behalf of such participant in accordance with the conditions described in paragraph (c) of this section, without regard to the fact that such rollover is not described in section 401(a)(31)(B) of the Code."

On the tax side, I don't believe the IRS has ever specifically stated that distributions of $1,000 or less can be automatically rolled over, but they also haven't said they can't be (and they've had plenty of time to do so...) And section 401(a)(31)(B) doesn't specifically prohibit it. (And presumably many plan documents have been approved with this language.)

[ETA Consulting LLC]

13 hours ago, card said:

(And presumably many plan documents have been approved with this language.)

Not 'presumably'.  Many plan documents have been approved with this language 
That's an excellent point.  You don't just decide you're going to automatically roll amounts less than 1000 over; you must follow the terms of your plan.

Good Luck!