Benefits Advisory: DOL and IRS Rollover Guidance May Make Involuntary Cash Outs History
1/11/2005
Section 411(a)(11) of the Internal Revenue Code of 1986, as amended (the "Code"), permits tax-qualified retirement plan sponsors to distribute account balances or benefits with a value of $5,000 or less without the consent of the affected plan participants. This provision is referred to as the "involuntary cash out" limit or rule. The purpose of the involuntary cash out rule is to allow plan sponsors to eliminate small accounts and benefits and thereby reduce plan administration expenses. In order to further preserve assets for retirement, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), amended the Code to provide that involuntary cash outs of more than $1,000 must be rolled over to an individual retirement plan (i.e., individual retirement account (IRA) or an individual retirement annuity) if the affected participant does not elect to receive his or her benefit in another manner. The purpose of this client alert is to provide an explanation of the more important aspects of the DOL Safe Harbor regulations and Notice 2005-5.
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