We're putting together <$5,000 letters for a terminated plan. Prior to composing the letter I've been going through material to see what notice and consent rules apply.

I came across something referencing a requirement that "the default method for involuntary distributions exceeding $1,000 is a rollover, unless a participant elects to receive cash instead."

This publication is dated 2001. Has a final regulation come out on this since then, or are we still in lump-sum land?

EGTRRA 2001 has a provision that mandatory cash-out of balances between $1,000 and $5,000 - where the Participant fails to make an election - will go to an IRA that will be set up in the Participant's name.

This provision is not effective until the Department of Labor issues regulations. The Department has a three year deadline - May 2004.

Superb!

I'll worry about it next year then. Thanks!

What remains unanswered is who would accept such IRA accounts anyway?

I have heard that this provison was added at the request of mutual fund families who thought it would allow them to gather more assets by having qualified plans transfer accounts of missing participants to deemed IRAs for which the fund families could collect an annual fee. But why would the sponsor want to give up assets which share in plan expenses and which are potentially forfeitable to provide a financial benefit for the fund family? Mandatory transfer only applies if plan provides for involuntary cash outs of 1000-5000. Plan can limit cashouts to account balances of less than 1000.