Mandatory Force-out for <$5,000 and attained NRA.

Plan documents appear to say that a default IRA rollover cannot be done for those who severed employment, attained the later of 62/NRA and have balance <$5,000.   So if they don't respond to the distribution process, they get a cash-out less withholding and are not to be rolled to a default IRA.   This seems to be something I had not noticed. I doubt we've had a case since retirees are diligent about getting their funds rolled out

Am I right about this? 

If you’d like BenefitsLink neighbors’ help to double-check your reading of the plan’s governing documents, it might help to quote the portions of the texts that seem to provide (i) an involuntary distribution on normal retirement age, and (ii) no default rollover on such a distribution.

Also, are the documents the subject of an IRS-preapproved documents’ opinion letter?

Or an individually-designed plan’s written determination?

If it's on a pre-approved document, you may want to check with the document provider.

If it is individually designed, check with the attorney who drafted it.

Actually, the language he is referring to is in the model 402(f) notice:

Unless you elect otherwise, a mandatory cashout of more than $1,000 (not including payments from a designated Roth account in the Plan) will be directly rolled over to an IRA chosen by the Plan administrator or the payor. A mandatory cashout is a payment from a plan to a participant made before age 62 (or normal retirement age, if later) and without consent, where the participant’s benefit does not exceed $5,000 (not including any amounts held under the plan as a result of a prior rollover made to the plan)

The confusion has to do with 2 different provisions in the law. First, you have 401(a)(31)(B) which requires that "mandatory distributions" be rolled over to an IRA if the participant makes no election and the amount exceeds $1,000. IRS Notice 2005-5 provides that for this purpose, a "mandatory distribution" is one that is forced out under the cash-out rules and made prior to the later of age 62 or NRA (Q&A 2 is below). This is what's reflected in the 402(f) notice.

You then have Regulation 1.411(a)-11 which provides that participant consent is required where a distribution is "immediately distributable," which is prior to later of NRA or age 62. Relevant portion of the regulation is below. The $5K cash-out provision is an exception to this rule. 

So, mesh those together and what you end up with is that after NRA/age 62, you can force out a distribution regardless of the amount. But there is no requirement to rollover the amount to an IRA if a participant makes no election. That means it's up to the plan terms (or arguably plan procedures) on what happens if no election is made - this is no different than with respect to amounts below $1K where the auto rollover isn't mandatory, but many plans do the rollover because it avoids uncashed checks. So, you first see if the plan forces cash-outs at NRA/age 62, and if so, and no participant election is made, does the plan or plan procedures provide for automatic rollover into an IRA or does the plan cut a check and hope it gets cashed. 

From Notice 2005-05.

Q-2. What is a mandatory distribution?

A-2. A mandatory distribution is a distribution that is made without the participant’s consent and that is made to a participant before the participant attains the later of age 62 or normal retirement age. A distribution to a surviving spouse or alternate payee is not a mandatory distribution for purposes of the automatic rollover requirements of § 401(a)(31)(B). Although § 411(a)(11) generally prohibits mandatory distributions of accrued benefits attributable to employer contributions with a present value exceeding $5,000, the automatic rollover provisions of § 401(a)(31)(B) apply without regard to the amount of the distribution as long as the amount exceeds $1,000.

From 1.411(a)-11: 

(4) Immediately distributable. Participant consent is required for any distribution while it is immediately distributable, i.e., prior to the later of the time a participant has attained normal retirement age (as defined in section 411(a)(8)) or age 62. Once a distribution is no longer immediately distributable, a plan may distribute the benefit in the form of a QJSA in the case of a benefit subject to section 417 or in the normal form in other cases without consent.

G8Rs, thank you for your helpful explanation about what a plan might provide or omit.

Does a typical IRS-preapproved document include adoption-agreement choices for whether an involuntary distribution on or after retirement age gets or lacks a default rollover (for a distributee who did not specify her choice)?

No, I don't think a typical pre-approved plan addresses this. But I think it can be handled procedurally similar to what is done for amounts under $1K. 

On 10/19/2022 at 8:47 PM, G8Rs said:

for any distribution while it is immediately distributable, i.e., prior to the later of the time a participant has attained normal retirement age (as defined in section 411(a)(8)) or age 62

This has little to do with the answer to Tom's question, which G8R's has obviously crushed. However, I have wondered about this for 40 years: Is it just me, or is the term "immediately distributable" sort of a misnomer for what the regs are explaining here?