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A qualified retirement plan may provide for the immediate distribution of a terminated participant's benefit, without the participant's consent, if the value of the vested benefit does not exceed $5,000. This is called a "cash-out."

The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRAA") amended the "cash-out" provisions. It is now required that any mandatory distribution in excess of $1,000 be rolled over to an IRA or an individual retirement annuity unless the participant makes an election to receive the distribution or to transfer the benefit directly to an IRA or qualified retirement plan.

Only "mandatory distributions" described in IRC Section 401(a)(31)(B) are subject to the automatic rollover. These mean distributions of a participant's vested accrued benefit that can be made without obtaining the consent of the participant and which have a value of at least $1,000, but not more than $5,000.

The Department of Labor has issued regulations to provide a safe harbor method for a fiduciary to satisfy ERISA obligations with respect to the selection of the IRA rollover and the initial investment of the IRA.

The Safe Harbor requirements are:

1. Amount.

   The amount automatically rolled over does not exceed $5,000.
   
   

2. IRA Requirements.

   The IRA must be a traditional IRA or an individual retirement annuity.
   
   

3. Written Agreement.

   The plan fiduciary must enter into a written agreement with an IRA provider that sets forth the following requirements:
   a) The funds must be invested in an investment product designed to preserve principal and provide a reasonable rate of return. The rate of return need not be guaranteed; however, the investment must be consistent with liquidity. Examples include money market funds, interest-bearing savings accounts and CDs and any "stable value products" issued by a regulated financial institution.
   
   b) The investment product must seek to maintain, over the term of the investment, the dollar value that is equal to the amount invested in the product by the IRA.
   
   c) The investment product must be offered by a regulated financial institution. This includes a 1) bank or savings association, the deposits of which are insured by the FDIC; 2) a credit union, the number of accounts of which are insured within the meaning of the Federal Credit Union Act; 3) an insurance company, the products of which are protected by state guaranty associations; or 4) an investment company registered under the Investment Company Act of 1940.
   
   

4. Fees and Expenses.

   All fees and expenses must not exceed the fees and expenses charged by the IRA provider for comparable IRAs established for reasons other than receipt of a rollover distribution. Fees and expenses include establishment charges, maintenance fees, investment expenses, termination costs and surrender charges.
   
   

5. Enforceability.

   The participant must have the right to enforce the terms of the contractual agreement establishing the IRA, with regard to the rolled-over funds, against the IRA provider.

Participants must be provided information about the automatic rollover procedures in the Summary Plan Description ("SPD") or in a summary of material modifications.

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