The Challenges Employers Face Regarding Retirement Plans with Low Balance Accounts

As 401(k) plan audit season and the Form 5500 filing deadlines has now passed, employee benefit plan sponsors should take the time review their participant accounts for terminated employees with low balance accounts. Many former employees leave their investment accounts in place after leaving employment with their former employer and neglect to roll over their accounts to their new employer’s employee benefit plan or to an Individual Retirement Account (IRA).

Employee Benefit Plans
Most plan provisions allow for automatic rollovers of participant accounts from $1,000 to $5,000 to an IRA. But that often leads to small accounts with less than $1,000 staying in the plan. In those cases, plan sponsors may force distributions by sending a check to the last known address of the participant. Unfortunately, this may lead to uncashed checks which can create another set of challenges for the plan sponsor. The Department of Labor has increased their focus on missing participants and the potential for unclaimed funds within employee benefit plans. Searching for missing participants can be a time consuming process.

A recent article from offers an interesting possible solution. By lowering the threshold for automatic rollovers to less than $1,000, plans can avoid some of these challenges. We encourage plan sponsors to review their participant account listings and develop a plan to deal with these accounts proactively. For companies that are moving closer to the number of participants that would require an annual audit, this can be a very worthwhile exercise.