Simple, Easy Plan Hygiene

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:

  1. Keep current with distributions. When an employee terminates, let us know so we can determine what benefits should be payable to that employee.
  2. Clean up distributions for prior terminees.
    1. Review all terminated participants due benefits and communicate to those who can receive distributions.
    2. Process distributions timely to mitigate increases due to mortality and interest rate improvements.
    3. Engage the help of a search agency if you cannot locate the participant.
    4. Follow up with participant communication if they do not respond.
    5. When the automatic cash-out exists in your plan, pay the participants.
  3. Proactively reach out to participants when they attain retirement age.
  4. 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.

This entry was posted in Informational, Plan Design, Retirement Planning. Bookmark the permalink.

Comments are closed.