As a plan fiduciary, one of your duties is to follow the provisions of the plan. It seems simple. It should be easy. Practically speaking, it is a daunting task to read, understand, and follow all the terms of the legal document. That is why we are here; to help plan sponsors interpret and administer their plans.
One plan provision that is often overlooked is the automatic cash-out provision. The Department of Labor (DOL) has recently called a failure to comply with this provision a breach of fiduciary responsibilities. This provision is often embedded in the plan to keep administration simple. It states that terminated participants with a present value under a certain amount, normally $5,000, should be cashed out of the plan. Not all plans have this provision, but if your plan does, here are some things to consider:
- Keep current with distributions. When an employee terminates, let us know so we can determine what benefits should be payable to that employee.
- Clean up distributions for prior terminees.
- Review all terminated participants due benefits and communicate to those who can receive distributions.
- Process distributions timely to mitigate increases due to mortality and interest rate improvements.
- Engage the help of a search agency if you cannot locate the participant.
- Follow up with participant communication if they do not respond.
- When the automatic cash-out exists in your plan, pay the participants.
- Proactively reach out to participants when they attain retirement age.
- Review and distribute minimum required distributions when participants reach age 70-1/2.
It seems simple. It should be easy. Practically speaking, it is a daunting task to follow through with the distributions. We are here to help.