Employers with active plans may, but are not required to, “cash out” small accounts of $5,000 or less after an employee has terminated employment. Another name for this practice is “forced transfer.” Generally, plans cannot pay out benefits unless an employee gives consent. A “forced transfer” is an exception to that rule. These transfers are most common in 401(k) plans. The rules of the plan must permit a forced transfer.
If an employer cannot find a former employee, and the account balance is more than $1,000 but less than $5,000 Labor Department rules require that the employer put the money into an IRA in the employee’s name. If the account balance is $1,000 or less, the money can be transferred into an IRA or a check may be sent to the employee.