$5,000 Cashout

[Guest JWBrown]

From a practical standpoing, how are plans operating the $5,000 cashout in a daily environment where the account could be under $5,000 when starting the process of a cashout, then go over $5,000 before distribution date? Considering the timing of sending paperwork to participants, having them fill it out and send it back for processing, then have the check cut, there are times when the value goes over $5,000.

Suppose you send someone paperwork telling him he will be cashed out, then receive his rollover forms, then go to do the distribution, and the account is now over $5,000? How would you know if you should do the distribution or not, since he may or may not want the distribution to occur in the absence of the mandatory cashout? Perhaps he just went ahead and requested the distribution because he wants it to occur, regardless.

[Guest]

JW, sorry it took so long for me to give you a response on this, but I had to do some research to find the answer. In talking with an ERISA attorney, he suggested that you should not perform the distribution since the dollar amount is over the $5,000 cashout requirement. I felt pretty certain this was the answer, but wanted to check.

One suggestion would be to put an administrative guideline in place that indicates you will not process a cashout if the dollar amount exceeds $4500. The market would have to gain more than $500 on that single day for it to exceed the cashout limit. Chances are fairly decent that that would not happen.

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Carol J. Ringwald

President

CJR Consulting Group, Inc.