When employees terminate, I feel they will immediately take a distribution from their 401(k) plan or they won’t. The problem is a plan sponsor loses track of former employees and it only becomes an issue when the plan is being terminated.
I think it’s extremely important for plan sponsors to keep track of former plan participants and give them a nudge that they should take a distribution annually. I think removing these account balances is what’s best for plan participants and more importantly, what is best for the plan sponsor. Too often, plan sponsors only wait until plan termination and I think it’s an important housekeeping function that they should do annually, rather than wait for the end.
