DOL Issues Regulations on Automatic Rollovers of Small Account Balances

Pension, profit sharing, 401(k) and other tax-qualified retirement plans are allowed to cash out participants who have terminated employment if their account balance or benefit value is $5,000 or less. The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) changed the cash out rule to require that small account balances of more than $1,000 must be rolled over to an individual retirement account (“IRA”), unless the participant elects another form of distribution. Proposed regulations were issued in March 2004, as summarized in our prior Management Alert. On September 27, 2004, the Department of Labor (“DOL”) issued regulations which makes this automatic IRA rollover effective as of March 28, 2005. The DOL regulations can be accessed at the following link: http://www.dol.gov/ebsa/regs/fedreg/final/2004021591.htm.