Involuntary Distributions – What are they?

Retirement plans have options in place to distribute balances of some terminated participants if the participant does not provide an affirmative distribution election. These are referred to as involuntary distributions, force-outs, or mandatory distributions. Why are there involuntary distributions? How can you administer this? How can ABG take the worry away?

Why have involuntary distributions?

Involuntary distributions help to clear out small balances of participants who will no longer participate in the plan. More importantly, this helps with lowering participant count and may allow your retirement plan to remain under the threshold required for an audit. Clearing out balances defined below as soon as possible ensures participants aren’t carried over into future years.Your plan’s adoption agreement may state if a terminated participant’s vested balance is less than $1,000 it will be distributed as a lump sum via a check to the participant’s home address. It may also state that if the terminated participant’s vested balance is greater than $1,000 but less than $5,000 it will be rolled into an IRA established by the plan administrator on the participant’s behalf.

How can the plan sponsor administer this?

When a participant terminates, a sponsor can provide a termination form or instructions how to request a distribution through the ABG participant website https://www.abgncs.com. On ABG’s termination form, there is a handout called Special Tax Notice Regarding Plan Payments. The tax notice explains taxation, rollover and withholding rules and needs to be given to participants no less than 30 days and no more than 180 days before a distribution is made. This allows participants time to submit a distribution request. Your plan may have a defined amount of time that must elapse before the plan sponsor can direct an involuntary distribution. For many plans, this timeframe is between 30 to 60 days. If the participant hasn’t directed their own distribution by this time, the plan sponsor may contact their ABG administration team for instruction how to distribute the balance.

How can ABG take the worry away?

Involuntary distributions can be simplified if you opt to use a full-service IRA rollover provider. ABG has partnered with Retirement Clearinghouse to provide our plans with a worry-free service! When your ABG administration team receives termination dates, either through our Data Validation Center for contributions or via phone call or email, ABG provides Retirement Clearinghouse with a list of terminated participants every 2 weeks. Retirement Clearinghouse handles mailing distribution forms to all terminated participants and ABG tracks the number of days elapsed. After 60 days, ABG will distribute the vested balances of the terminated participants as either a check or to an IRA established by Retirement Clearinghouse if the balance meets the rollover amount threshold. This service adds no cost to your plan and takes the worry away from involuntary distributions.

There are two options available to work with your plan’s design:  $0 to $5,000 rollovers or $1,000 to $5,000 rollovers. If your plan document states all involuntary distributions are rolled into an IRA, ABG will direct all of the vested balances from $0 to $5,000 to Retirement Clearinghouse. The $1,000 to $5,000 option means that vested balances less than $1,000 will be distributed as a lump sum check to participants and vested balances between $1,000 and $5,000 are rolled into IRAs created by Retirement Clearinghouse.

Do you have up-to-date addresses for participants who terminated years ago? If you don’t, this is not a problem for Retirement Clearinghouse. They have resources to track down missing participants if you do not have a recent address. A great feature of the $0 to $5,000 option is that if your plan has outstanding distribution checks due to bad addresses, we can reissue the funds to Retirement Clearinghouse. They can help out with these old cash items and get them off your plate.

Ask your ABG administration team how you can administer your plan’s involuntary distributions and request more information about Retirement Clearinghouse. Thanks and have a great day!

Todd Eyler, QKA

Account Manager – Retirement

Proposed Changes to Exempt Status

The DOL released proposed changes to the Exempt Status wage test recently. The current regulations state an employee must pass the Salary and Duties tests to be considered an exempt employee. The salary basis test today requires the base salary of an employee to be at least $23,600. The proposed changes for the salary basis test are to raise that amount to $50,440. That is a 113% increase that will more than likely be effective 1-1-2016.

Other proposed changes include increasing the HCE salary levels, determining if non-discretionary bonuses should be included in calculating the standard salary, and provisional changes to the Executive, Administrative and Professional workers classifications. The increase to the salary test also will include annual automatic increases based on the Consumer Price Index.

If you would like to read more about this, visit the proposed rule-making site for the DOL here.

The DOL is accepting comments through September 4, 2015, all employers are encouraged to share their opinions about these proposed changes here.

Important Date:

August 1, 2015  - Minnesota increased minimum wage to $9.00 for large employers and $7.25 for small employers.   

Need a guide to each state? Find it here 

Contact Us:

If you have questions regarding the information provided in this post, you can contact us at 800-880-4015, or email us at info@abg-mn.com.