Did not do cashout under $5k--failure to provide benefit on 5500?

There's a question on the 5500-SF: Has the plan failed to provide any benefit when due under the plan?

If a plan did not process the mandatory cashout, do we answer yes?  

The 5500-SF instructions only reference RMDs.

But does it include other distributions?  Like the cashouts?  Or when someone requests a distribution but it languishes for some reason.

Before responding, let me share this.  About 4 years ago I did some research for a client who asked how plans actually respond to this question.  The client had responded 'yes' for several years and had never had any feedback from either the IRS or DOL.  The client was checking 'yes' because the plan had some account for some missing participants who had been missing for a very long time, and in-house counsel insisted that they had to check 'yes' (even though the auditors disagreed).

I downloaded the 5500 and 5500-SF data files from EFAST2 and looked at the responses to this question.  There were not very many 'yes' responses, and almost all of the 'yes' of the were for DB plans.  Only 21 'yes' responses were for DC plans.

I called the DOL and asked them about how to respond to the question and they said this was an IRS question and I should talk to the IRS.  I called the IRS and asked them about how to respond to the question and they said if it's on the 5500, I should call the DOL.  After some persistent follow up, the agencies did speak with each other and agreed that the IRS would be the agency that would follow up with me.  Never heard back from anyone.  (The client ultimately sought advice from outside counsel and started responding 'no'.  Guess who is no longer working at the company.)

Enough tales of woe.  

Does the plan document have clear language that account balances under the cash-out limit for terminated participants absolutely must be paid within a fixed time period after termination (to allow for participant consent if available)?  If not, then the is wiggle room for an interpretation that the payment is not mandatory.

Be sure to read the details in any Basic Plan Document that is associated with an Adoption Agreement.  The language in the Adoption Agreement tends to be abbreviated and sounds more absolute than the supporting language in the BPD.

I don't know the answer to your question about whether other distributions should be included, but I agree with Paul I that you should check the plan document for the language regarding "mandatory" cashouts. I know that we as practitioners use this terminology regularly, but I question whether it's accurate. As an example, our document (pre-approved NS plan) does not mandate cashouts. It gives the plan administrator discretion to cash out if they choose to. Some of our clients don't force out small distributions even though they have the discretion to do so. Others likely have an automatic cash out process set up with their recordkeeper (but even if they do, the plan document does not require it). This gives the plan administrator maximum flexibility and if they don't do it, they're still following the terms of the plan.

If your document does not mandate cashouts, then I think the obvious answer is that you answer no on the Form 5500, at least with regard to cashouts. 

Apart from the Form 5500 question:

If a plan’s governing documents grant the plan’s administrator discretion about whether to pay or omit an involuntary distribution, shouldn’t an administrator fear that discretion?

If a fiduciary has that discretion, must the fiduciary decide loyally and prudently “for the exclusive purpose of [] providing benefits to participants . . . ”?

Must a fiduciary decide whether paying or omitting the distribution is in the participant’s best interests?

If so, must a fiduciary use ERISA § 404(a)(1)(B) “care, skill, prudence, and diligence” to form that discretionary decision-making?

What facts must or should an administrator consider in deciding whether to pay or omit a discretionary involuntary distribution?

(The underscore is not mine.)