Cash Balance Plan Terminee Forms of Benefits for Distribution

In the past, a terminated participant with a vested benefit payable from a pension plan had to be provided with annuity options (actually, the normal form of benefit) if the lump sum value of their benefit exceeded $5,000. In other words, terminees with a vested lump sum value of less than $5,000 could simply be paid a cash lump sum. Did this threshold go up to $7,000 with the SECURE Act? If so, then I would think a terminee with a vested lump sum value of less than $7,000 could just be paid a cash lump sum for plan years beginning in 2025.

Does anyone disagree with this?

Thanks!

Yes, the cash out threshold is now $7,000 if a plan chooses to implement. Amendment need not be adopted until the end of 2026 but be sure to document the decision and implementation timing because amendment must match operation.

Cash out, however, does not mean simply paying a lump sum, it means providing the 402(f) notice and the ability to make an affirmative election (rollover or payout) with at least 30 days to decide, and then making a default IRA rollover if no affirmative election is made within the minimum 30 day election period.