Exploring Employee Benefit Plans
Part 2: De Minimis Balances of Terminated Employees
Common Finding
De Minimis distributions should occur when balances are below a certain threshold, as defined by the Plan document. Most plans have a requirement for balances less than a determined value of $1,000 or $5,000. The maximum can be increased to $7,000 during 2024 with the change in the Secure 2.0 Act.
Terminated employees with balances below these thresholds should be distributed in cash or rolled over into an individual IRA account outside of the Plan.
Recommendation
Management should implement a process to review balances of terminated employees on a regular basis, such as quarterly or bi-annually, and distribute balances that meet the Plan’s requirement. This process can be delegated to your Third-Party Administrator (TPA).
One common issue when De Minimis distributions are not occurring is due to the participant not having an updated address with the TPA. It is the responsibility of the Plan Sponsor to ensure all current and past employees have updated addresses with the TPA.
