Handling Small Balances
CFO (06/02) Vol. 18, No. 6 p.24; Bachelor, Lisa

As businesses await new Department of Labor regulations for the removal of small balances in 401(k) plans, many employers are cleaning out low-balance plans while it is still cheap to do so. Under new regulations, companies will have to set up individual retirement accounts for 401(k) accounts they want to jettison. But some companies are taking advantage of the old system while they still can, with many opting not to set up IRA accounts, and others removing plans under $5,000. These last-minute actions have not gone over well with employee-benefit advocates and former employees, who complain that some employers are mailing a check for the balance but deducting a 20 percent withholding tax. In most cases, employees cash the check not knowing they will also draw a tax penalty. Experts like Rick Meigs, president of 401khelpcenter.com, says companies ought to inform their employees in writing about their options before they cut checks.

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