Notification on payouts under $200

[ldr]

Good morning, All!

When a plan has automatic cashout provisions, and checks are being issued for under $200, it is my understanding that there is no withholding, and participants do not have to fill out forms.  The plan's trust issues the checks and mails them to the last known address.  My question is this:  Does the participant have to receive anything besides a check?  A notice, letter of explanation, etc.?  As a courtesy we will draw up something or another, I am sure, but I wanted to know if there is a particular requirement or format or something we are supposed to follow.

Thanks in advance for your ideas.

[ETA Consulting LLC]

The participant still has to receive the special tax notice (notifying him of his rollover rights).  That notice can be sent concurrently with the check.

Good Luck!

[RatherBeGolfing]

8 minutes ago, ETA Consulting LLC said:

The participant still has to receive the special tax notice (notifying him of his rollover rights).  That notice can be sent concurrently with the check.

Good Luck!

No special tax notice needed for distributions under $200

Treas. Reg. §1.401(a)(31)-1, Q&A-11.

 

[ldr]

Thanks, RatherBeGolfing.  That pretty much confirms what I thought too.  We are doing all this via email and the employer asked us to attach this year's participant statement and SAR so she wouldn't have to deal with it.  So for the under $200 people, we are just simply explaining that a check will be sent, no withholding will apply, no forms have to be filled out, and incidentally their statement and SAR for the year are attached.  Easy stuff.  

 

 

[RatherBeGolfing]

1 minute ago, ldr said:

Thanks, RatherBeGolfing.  That pretty much confirms what I thought too.  We are doing all this via email and the employer asked us to attach this year's participant statement and SAR so she wouldn't have to deal with it.  So for the under $200 people, we are just simply explaining that a check will be sent, no withholding will apply, no forms have to be filled out, and incidentally their statement and SAR for the year are attached.  Easy stuff.  

 

 

Yea it is always good to give them some heads up.  Its easier to do that than deal with un-cashed checks and missing participants.

[Mike Preston]

I know you don't **have** to provide the 402(f) Notice but it is still good practice to give them something.  I haven't revisited the issue in a long time but about 10 years ago we ended up with an "under $200" instruction form that is only one page:

INSTRUCTIONS TO PARTICIPANT FOR LUMP SUM DISTRIBUTION - $200 OR LESS

You are entitled to a distribution from the _______________________ Plan.

Attached is a check that represents your full benefit.

60 Day Rollover Option: ....

Additional 10% Tax If You Are under Age 59-1/2. ....

General Rules for Alternate Payees.....

General Rules for Beneficiaries....

 

[Draper55]

some documents are written with no rollovers under $500 so in such case clearly no notice is required.