Automatic Rollover Rules (IRS Notice 2005-5)
As previously discussed here, there are new rules which govern a retirement plan's decision to require mandatory cash-out of a participant's assets if they are less that $5,000 at their separation from employment. This rule applies to pension, profit sharing, 401(k) and other qualified plans. The recently issued IRS Notice 2005-5 identifies which plan distributions are impacted and identifies considerations for plan administrators in deciding whether to amend their plans to require mandatory cash-out. Generally, according to Seyfarth Shaw in a recent Management Alert,
"With some exceptions, plans that provide mandatory distributions in excess of $1,000 must adopt a good faith plan amendment implementing the automatic rollover rule by the end of the first plan year ending on or after March 28, 2005."
They further note that the IRS has provided a sample plan amendment for this purpose.