401K Force-Outs

Force-outs be processed at least annually to ensure these transactions are handled in a consistent manner and that you are in operational compliance with your plan document.  Force-outs should be processed by end of January for previous years participants.

In most cases, regulations require a participant to consent to distributions from their account.  However, plan sponsors are permitted to force distributions from terminated participants’ accounts without their consent if their vested balance is below a certain threshold.

Your plan document includes the following force-out provisions:
 

• Vested balances of $1,000 or less will be paid to the former employee as a cash distribution.
  
   
• Vested balances greater than $1,000 and not exceeding $5,000, as determined by including rollover source money, will be rolled over to the Voya Employer’s Rollover IRA.

ACTION STEPS

I have attached a report that contains all participants whose vested account balances fall below the threshold stated in your plan document for force-outs.  Only those individuals who have terminated are subject to the force-out provisions.  If/When you would like to have force-outs processed, please review the report and do the following:

1. Make sure participants are correctly indicated as terminated or active.

Any participants who have terminated but are listed as active should have their termination date added using the Payroll Administration tool on the Sponsor Website.  If any participants listed as terminated have been rehired, please let me know and provide their rehire date.  Note: if you have no terminated employees whose balances are below the force-out threshold, no further action is required.

2. Notify terminated participants subject to the involuntary cash out provision.

Each terminated participant that is subject to the force-out provision must be notified in writing and given time to take a voluntary distribution.  Attached is a sample participant letter providing a 30-day window for the participant to make such election; note that you may adjust the window to anything between 30 and 90 days.  Also attached is the Special Tax Notice that must be included in the notification.  Keep copies of each letter for your files.

3. Return the updated report.

Once your letters and special tax notices have been mailed, please return the updated report by replying to this secure email.  In your reply, please let us know (1) the date your letters were mailed and (2) the allotted window (30 to 90 days) for participants to do voluntary distributions.  At the end of the window, we will process force-outs for any terminated participants under the threshold who have not taken voluntary distributions.