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Posted

What is the correction method for an operational failure to exclude rollovers when applying the $5000 involuntary cashout distribution rule in a plan to termed participants?  The plan has operated since 2018 as if rollovers were included. Do we go back to each prior plan year and look at the small accounts that should have been cashed out and cash them out now in 2024 even though the  vested balance could now exceed $5000. Thank you for your thoughts. 

Posted

With no research or deep thought, my inclination, IF the current vested account balance exceeds $7,000 (assuming you switch to $7,000) while excluding rollovers, then the money stays in the plan. If less than $7,000, excluding rollovers, then force the distribution.

Yes, there's a prior operational error, but it really is a no harm no foul situation - participants haven't lost anything. Clean it up using the appropriate rules going forward, and let bygones be bygones.

Others may disagree.

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