457f Participant with Small ($0.02) Vested Account Balance Mistakenly Not Distributed

Hi. We have a 457f Plan. A participant recently received distribution of the vested portion of his account. $0.02 was mistakenly not distributed. What are our options for this? Distributing would be cost prohibitive. Our plan document does not discuss de minimis amounts. The plan does have constant 3 year vesting cycles. So this participant will be due another distribution next year. But I don't see how we can add this to his account balance that will vest next year. Can we just forfeit this amount as a de minimis amount? 

I appreciate any thoughts.

I can appreciate that documents, procedures and regulations often are written to say the rules are black and white, right or wrong, good or bad... which makes it easy to obsess with being perfect.  But we live in the real world where stuff happens and there is a need to be practical.  Even the IRS has guidelines for rounding to the nearest dollar on tax forms.

Yes, distributing $0.02 is very costly relative to the amount.  If you ask the payee about it and they want the $0.02, then send them a letter with two pennies taped to it.  Even that is disproportionate to the amount, but that's okay if it makes everyone feel better.  The same suggestion applies to adding $0.02 to next year's payment.

I appreciate your understanding of the situation and seeking input for a pragmatic approach resolution. These are my thoughts, but others may feel differently.

Adopt an admin policy that charges accounts of terminated employees a processing fee equal to the lesser of the account balance or $5.00

He is actually not a terminated employee. Each year, a participant vests in the contributions from the prior three years. But I see your point about a processing fee.

An unfunded deferred compensation plan is a contract.

Some obligors facing a situation like the one waid10 describes might decide that the obligee is unlikely to pursue enforcement of his right to be paid $0.02 plus interest.

Absent an obligee’s release, some obligors meet one’s obligations, even when an expense to do so seems disproportionate to the value of the obligee’s right.

Which reputation does this employer prefer?

(A processing charge on an individual’s account is inapt unless the deferred-compensation contract provides the charge, or at least granted the obligor a power to decide the charge.)

As Paul I suggests, the obligor might simply ask the obligee whether he wants the two or three cents, or releases the obligor from its obligation. The obligee might be gracious.

How about this.  Call the participant.  Ask him to stop by and give him two pennies before the disappear from circulation.  Or tape them to a care and mail them to him.