small SH due to paid-out participant

Plan allows for immediate distributions, and participant K separates from service and takes her money out ASAP.  Now we're doing the annual admin, and she is due $40 in safe harbor nonelective.  If the sponsor puts it into her account, it will get eaten by distribution fees; K will never see any of it.  But I don't think that the sponsor should benefit from this situation.  Is there a best practice for doing something relatively meaningful with this $40?  Thanks.

Basically, this is a situation where the participant's annual income was about $1,333 and there is a distribution fee (commonly up to $100) that is charged per payment by the service provider.  Nobody "wins".  The plan sponsor contributed $40, the service provider either gets only the $40 for a fee (or charges the plan sponsor for the other $60), and the participant does not get their $40 of additional vested benefit.

Everybody involved should have known that there was an additional amount that would be credited to the participant at the end of the year.  This is how the SHNEC works.

Everybody should have known that each check issued was going to incur a fee.  This should have been disclosed explicitly in the 404a-5 notice, and possibly as part of the request for distribution.

I have seen plan administrators take different perspectives on how this would be handled.  Some say the participant did not have to take a distribution until after the SHNEC was allocated, so the it was the participant's choice.  Some say the participant paid for a distribution and the payment of the remedial amount was part of that distribution, so the plan sponsor picks up the tab.

Definitely check the service agreement with the service provider(s).  This service agreement may say explicitly how the distribution fee will be handled in the event the participant's account balance was insufficient to pay the fee.

In this case, best practice is:

• what if anything the plan document may say about payment of expenses, 
• what the plan sponsor and service provider have agreed upon, 
• what has been standard operating procedure for the plan in other similar instances (i.e., administrative policy and procedures), and 
• what has been clearly communicated to all parties.

Don't additional contributions get swept based on previous withdrawal instructions? 

About whether the earlier payment and a later payment is or isn’t treated as one distribution, and, possibly relatedly, whether the payments are treated as one or distinct for a processing charge:

Is this another RTFD moment?

What do “the documents and instruments governing the plan” — perhaps supplemented by, or interpreted regarding, the administrator’s written procedures, a relevant claim form, relevant disclosures (possibly including a summary plan description and a recent 404a-5 disclosure), and the administrator’s agreements with its service providers (possibly including a recent 408b-2 disclosure) — provide?

If, after thoroughly considering all writings, the plausible conclusions are close to evenly supported or evenly unsupported, which discretionary interpretation is the one the administrator prudently considers sound as its going-forward precedent?

Or, after considering that somewhat similar situations might occur with some estimated number of participants, is the plan’s expense for seeking a sensible conclusion disproportionate to the plan’s interests involved?

This is not advice to anyone.