Involuntary Cashouts
“Default Option” for Distributions from Qualified Plans - (Code Sec 401(a)(31)) - The plan administrator must provide for a default rollover of any involuntary distributions from a qualified plan, unless the participant specifically makes another election. To remain qualified, plans must provide that if:
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A distribution of a nonforfeitable accrued benefit of less than $5,000 but more than $1,000 is made, and
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The distribute does not make an election to have the distribution paid directly to another qualified plan or IRA, and does not elect to receive the distribution directly, the plan administrator will make the transfer to an IRA and notify the employee.
SECURE 2.0 Act Section 120 permits a retirement plan service provider to provide employer plans with automatic portability services. Such services involve the automatic transfer of a participant’s default IRA (established in connection with a distribution from a former employer’s plan) into the participant’s new employer’s retirement plan, unless the participant affirmatively elects otherwise.
Effective Date: Effective for transactions occurring on or after the date which is 12 months after the date of enactment of this Act.