Require full distribution at Required Beginning Date?

How do most 401(k) plans handle RMDs when the plan's only form of payment is a single lump sum? Do they require full distribution upon a participant reaching his or her Required Beginning Date? And if so, how do they handle it if a Participant does not request a full distribution?

In general, a plan may not distribute a participant's balance without their consent. There is an exception for the amount required to satisfy RMDs.

What does the plan document say?

Many plans provide only one form of distribution—a single-sum payment.

A plan may provide that a no-longer-working participant (rather than a still-working 5%-owner) who has reached her required beginning date is paid her whole account.

(Only rarely would a participant who has reached her required beginning date not also have reached her normal retirement age, which allows an involuntary distribution.)

If a direct rollover is requested or provided, the administrator divides the account into minimum-distribution and rollover-eligible portions.

If a participant has not requested her distribution, the plan pays an involuntary distribution.

This might include a direct rollover—of the rollover-eligible portion—to a default Individual Retirement Account.

The minimum-distribution portion is a money payment.

@Peter, I'm a aware of multiple providers who will take cashout IRAs under the dollar limit or will take cashout rollover IRAs of any dollar amount if the Plan is terminated, but I don't know of any who take cashout rollover IRAs over the cashout limit because the participant is at the later of age 62 or Plan's Normal Retirement Age and the Plan calls for them to be cashed out. These providers may exist and if they do, I'd be interested in them.

As to the OP question whether it is correct or not, our Plans will pay the RMD, if the participant is terminated and if they want more then the IRA we tell them the plan requires they take a full distribution either taxable, rollover or split between the two but the Plan does not make ad hoc payments.

4 hours ago, Lou S. said:

@Peter, I'm a aware of multiple providers who will take cashout IRAs under the dollar limit or will take cashout rollover IRAs of any dollar amount if the Plan is terminated, but I don't know of any who take cashout rollover IRAs over the cashout limit because the participant is at the later of age 62 or Plan's Normal Retirement Age and the Plan calls for them to be cashed out. These providers may exist and if they do, I'd be interested in them.

I agree with Peter on the involuntary distribution part, although Lou S. you may well be right that the involuntary rollover isn't practically available. I've never seen this actually happen because neither the plan nor the participant is typically this stubborn, but if the participant has separated and is past NRA, the plan could just send the participant a check and withhold 20%, if the participant refused to submit distribution paperwork, assuming that's what the plan document provided.

All good advice.  Again, as said many times before, the plan document is key.  What does it say?  The heck with what the "provider" does.  The provider must follow the plan document, so that's where you look.  The law and regs are important, too, of course.  The "provider" follows the terms of the plan and makes certain it all complies with applicable law and regulations.  This assumes that the provider knows the plan document intimately, as it should, as well as the law and regs.  One more thing. The way plans are drafted (by imperfect humans) they are not always 100 percent clear on all situations.  To clarify going forward, simply amend the plan.  Until that's done, the appropriate plan fiduciary should determine what should be done in light of what the plan does say, if imperfect, and of the law and regs, and document that decision with reasoning.