Automatic Rollover Rules

The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) changed the cash-out rule to require that account balances between $1,000 and $5,000 must be rolled over to an individual retirement account (“IRA”). This only applies if the plan sponsor makes the appropriate election in the plan document and the participant does not elect another form of distribution.

If your plan allows for mandatory rollovers, a written/signed agreement must be established with an IRA provider and policies and procedures must be in place to accommodate the rollovers.  Participants must be given the appropriate distribution paperwork, including the 402(f) Notice of Special Tax Rules on Distributions.  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 must be issued to the participant.

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