If your defined contribution plan contains a cash-out threshold of $1,000.00, participants with account balances below $1,000.00 must be forced to take their money out of the plan. Participants with small balances must be given the appropriate distribution form(s), along with the Special Tax Notice. If a response is not received by the end of the notice period, which is at least 30 days but no more than 90 days, a check may be issued to the participant. If a terminated participant has a vested balance of less than $200, his or her account can be forced out without having to go through the notification process.
Since many fees are based on participant counts and many plan notices (participant fee disclosures, summary annual reports, etc.) must be provided to former employees with balances, eliminating those balances can save the plan/plan sponsor money.
