Small Account Balances in a Daily Plan

[Hoard1]

A 401(k) Plan has serveral participants with small balances (less than $25.00 for prior PS forfeitures)who are not contributing to the 401(k) portion of the Plan. Is there any way to either cash these people out of forfeit their account balances without a severence of service? The Employers does not want to continue to pay a participante charge for non-contributing employyees. Could the plan establish an administrative proceedure that would require participant fees to to taken from the account balances of non-contributing participants? This would clear these small accounts. Because there are several participants who are contributing small amounts to the plan ( $5 & $10 a pay check )the employer does not want to charge fees to all participants.

[MoJo]

Good luck. I know of no way to distribute small balances absent a distributable event (i.e. separation from service, etc...). As for charging fees, I know of some that are doing that, but I don't recommend it. Shades of discrimination here.... Generally the DOL doesn't like punishing people for exercising an ERISA right (like keeping a balance in a plan until termination of employment).

[Hoard1]

What if some of the non-contributing Participants are HCE and Key ( do not participate to avoid Top Heavy Contributions )?

[Hoard1]

Or how about this - Non contributing participants with less than $25 or $50 will have their $$ pooled in a saving account in the name of the plan with interest allocated to it. That way they will be out of the fund providers recordkeeoing system so the client won't be charged a participant fee from the fund provider

[Guest klc]

I agree with Mojo...Good Luck. This seems discriminatory to me. These are participants in the plan and they have a right to stay in the plan until a distributable event occurs.

[Guest klc]

I agree with Mojo...Good Luck. This seems discriminatory to me. These are participants in the plan and they have a right to stay in the plan until a distributable event occurs.

[Guest Robin Davis]

If these participants are HCE's that are not contributing to the plan in order to avoid top heavy contributions (concerned about damaging the plan?) why not offer a nonqualified 401(k) carve out plan? This is becoming very popular in the mid market for companies that are interested in providing a 401(k) plan to their employees but can't because of the HCE's. The HCE's are "carved out" of the qualified plan and placed in a nonqualified "mirror" plan. Then have them rollover the balance from their 401(k) plan or, if you can't do this, they can elect to take a distribution.

If the HCE's would like to contribute but aren't only because of the top heavy issues this might be something to think about.

Otherwise, I would have to agree with the others, unless you can convince them to elect a penalized distribution, good luck.

Hope this is of some use!

P.S. I noticed in one of your other postings you mentioned 1st Global. I provide nonqualified benefit plan support for their advisors and have discussed this option with Darren.

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Robin Davis

D&D Benefits, L.L.C.

972-755-3327

[This message has been edited by Robin Davis (edited 01-06-2000).]

[Guest ptpnthr]

To prevent future small balances, amend the plan to use forfeitures to pay plan expenses or reduce employer or matching contributions.

[Guest sacobb]

If expenses are charged to the plan, how about doing it on a per head basis rather than pro-rata on account balance basis. Thus, if it costs $100 per year per participant to administer the plan, it clears out the small account balances. I've used this method of charging expenses are some rather large plans and it seems to work well. You just want to make sure your document is worded so that it permits you do allocate this way.