Employees retire. Or quit. Or change careers. But even if an employee has punched the clock for good, your administrative responsibilities to their 401(k) account might be ongoing.
Can I Force Them Out?
If you are hoping to force former employees out of your 401(k) plan, you will have mixed results depending on their account balances.
If an account has less than $1000, the plan can cut a check to the former employee for their account balance, less the required 20% to cover federal taxes.
If an account has more than $1000 but less than $5000, then you can set up an IRA for the former employee and transfer their 401(k) funds to that IRA.We are happy to help you with this task. Most custodians have an easy process to help you do so.
Note: the plan's ability to enact these 'force-outs' must be specified in your plan's literature. If it is not, you should add this provision and then notify plan participants accordingly.
If an account balance is more than $5000, you cannot force any action on the former employee. But your options are not yet exhausted. You can keep an open dialogue with your former employees and encourage them to roll over their funds to a new 401(k) plan or move their money to an IRA.
I Can't Contact My Former Employees.
People move addresses, change phone numbers, even change names! It can be hard to keep track of all your former employees. Inevitably, there might be a former employee who you think should rollover out of your plan, but you cannot get ahold of them to discuss it!
Some options to consider in this scenario:
1. Send certified mail to their former addresses. If they were simply ignoring your previous attempts, they cannot ignore receipt of a certified letter.
2. Check other records in the company for potential contact info. While their 401(k) record might not have full contact info, perhaps their file with HR does have the one old Hotmail email address that they are still using.
3. Contact their designated beneficiary (if there is one listed). This beneficiary hopefully knows how to contact your former employee.
4. Use search tools---either free online tools or a paid expert. Consider the best interest of the employee. Is it worth using a small fraction of their account balance to hire someone to find them?
5. Reach out to your financial advisor to see if they have resources available for tracking former employees.
The natural evolution of businesses and careers means that you will be carrying former employees on your plan. What you choose to do with them is up to you.
Many smaller accounts can be forced out by directly paying the former employee or creating an IRA for them. And while larger accounts cannot be forced out, you still have ways of working with your former employees to roll over or move their funds.