Having employees can get a bit messy. I know that from experience, having left a position or two that may not have been on the best of terms (I bring that out in people).
If you have a 401(k) plan that you sponsor, I suggest trying your best to having those former employees roll out their account balances. Sure, for most distributions (usually over $1,000 or $5,000, depending on the plan’s terms), you will need their consent, but you have to give the nudge to these former employees that it might be a good idea to roll out their account balance.
Why? Participants, even former participants, are entitled to notices and updates as required by law. It’s hard to keep up with former employees that you’ve lost in touch with and those you were happy to lose touch with. In addition, I always say that former employees are more likely to cause plan sponsors trouble than current employees.
Too many plan sponsors send out the initial paperwork to these former employees and never follow up. The problem with that approach is when the plan needs to be terminated, it becomes a headache trying to locate those you lost in contact with. A little housekeeping now will avoid the major housekeeping when the plan is winding down.
