Updated August 24, 2023

Increase in ‘Force Out’ Threshold from $5,000 to $7,000 for Former Employees

Maintaining former employee accounts with small balances has long been complicated and costly. While optional, many plans already include an automatic cashout provision for balances under $5,000. With proper notice and absent specific instruction from the former employee, an employer may move a vested account below $5,000 to a default Rollover IRA established for the participant.

Beginning with distributions after December 31, 2023, the $5,000 limit may be increased to $7,000.

The amendment deadline to make this optional change is the last day of the plan year starting on or after January 1, 2025. However, in the interim, notices and communications to participants in the plan should be updated to reflect the change.

Let Pinnacle Plan Design Help

Consultants at Pinnacle Plan Design are actively monitoring new guidance concerning SECURE 2.0. This represents our understanding of the laws at this time. Additional guidance will provide additional clarity. If you have any questions about the ‘force out’ rules in your retirement plan, don’t hesitate to contact us at (520) 618-1305.