Mandatory Distribution Procedures

Key Takeaway

Instructions for processing mandatory distributions (or force-outs) for any terminated participant with a vested account balance less than the thresholds established by the Internal Revenue Code and the plan.

Notify Each Participant

Prior to processing a mandatory distribution, the plan is required to notify each participant of this force-out and of their ability to initiate a distribution before the force-out occurs. If the participant’s account is not distributed within 30 days, the plan is permitted to cash out the participant’s account or roll the participant’s balance from the plan into an IRA for the benefit of the participant, depending on the value of the participant’s account.

Your plan has an agreement with PenChecks Trust Company of America (Penchecks) as an IRA service provider to process force-out distributions. As part of this agreement, Penchecks will notify each participant and partner with Alerus to roll over the funds. The process is detailed below.

StepResponsible Party

Provide Participant Information

IMPORTANT. This is an automated process that relies on accurate participant information provided by the plan sponsor on each payroll file, including:

  • Termination dates.
  • Rehire dates.
  • Hours of service, if the plan has a vesting schedule.
Plan Sponsor
2Provide List of Terminated Participants to PenchecksPlan Sponsor

Notify Each Participant on List

  • Validate addresses and update as needed.
  • Mailing includes Notice regarding Mandatory Distribution Requirement (the “letter”) and a link to the Special Tax Notice.
Plan Sponsor

Initiate Distribution From Plan for Each Non-Responsive Participant

  • Initiate rollover or cash distribution from the plan.
  • IRS Form 1099-R issued to participant in the year disbursed.

Send Welcome Letter to IRA Participant

  • Provide participant with credentials and instructions to login.
  • Outline information regarding the IRA rollover.
  • Provide Penchecks contact information.