Enforcing Mandatory Distributions: A Best Practice for Retirement Plan Sponsors
Retirement plan sponsors carry the responsibility of ensuring their plans operate smoothly and remain compliant. One often-overlooked but critical provision is the mandatory distribution of small balances.
Under most plan documents, participant balances under $7,000 must be distributed annually. These balances are either rolled into an IRA or cashed out with a check sent to the participant.
Benefits of Annual Enforcement
- • Regulatory Compliance Staying aligned with IRS and ERISA requirements protects your organization from penalties and audits.
- • Administrative Efficiency Removing small, inactive accounts reduces clutter and simplifies plan oversight.
- • Cost Savings Recordkeeping fees are often assessed per participant. Fewer accounts mean lower administrative costs.
- • Participant Support Distributions ensure former employees gain access to their funds, whether through an IRA rollover or direct cash-out.
A Proactive Approach
By enforcing this provision annually, plan sponsors demonstrate diligence, reduce risk, and enhance the overall health of their retirement plan. It’s a small step that delivers significant benefits for both the organization and participants.
Julia Sanders | AIF ®, CPFA®
Retirement Relationship Manager
Securities and Investment Advisory Services Offered Through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Adviser, Member FINRA/SIPC. Rose Street Advisors is independently owned and operated. #5371642Interested in more?
Let's Talk