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Keep Plan Clean

When an employee is terminated, she is not required to move her funds from the plan except for two scenarios. If the balance is less than $1,000, the employer, after notice, can instruct the trustee to issue a check if terminated employee has not take action. If the balance is more than $1,000 and less than $5,000, the employer can instruct the trustee to roll the balance over to an IRA after sufficient notice to the terminated employee.

It's the balances greater than $5,000 that present the biggest problems for plan sponsors. There are many reasons for terminated employees leaving their balances in former employer's plans. The most common reasons are not getting around to it and confusion about the process and paperwork.

The risks are outlined below and should be taken seriously:

  • Increases exposure to failing to notify former employees of investment changes
  •  Increases record-keeping expense
  • Increases fiduciary risk