Yes! You can use AI to fill out Mandatory Distribution Processing Authorization

Plan administrators may enter overlapping or ambiguous monetary values for the cash-out and rollover thresholds on plan setup forms. For example, setting a cash-out limit of '$1,000 or less' and a rollover threshold of '$1,000.01-$7,000' is correct, but setting both to start or end at '$1,000' creates processing conflicts. This error leads to incorrect distributions, participant complaints, and compliance issues. To avoid this, always define distinct, non-overlapping monetary ranges and double-check the plan document settings before finalizing.

A frequent error is using a participant's total account balance, which includes unvested funds, to determine eligibility for a force-out. The rules are explicitly based on the vested account balance. This mistake can cause a plan to improperly force out a participant whose vested balance is above the threshold, or fail to include an eligible participant. Always ensure that any reports or data files used for this process are configured to filter and calculate based on the vested balance only.

When the Plan Administrator is responsible for manually managing force-outs, they may fail to run or properly analyze the necessary reports to find all eligible terminated participants. This oversight results in low-balance accounts remaining in the plan, which negates the cost-saving benefits of the provision and increases the plan's administrative burden. To prevent this, administrators should establish a recurring, documented schedule (e.g., quarterly) for running and reviewing the 'Participant Involuntary Distribution Listing' against termination records.

Initiating a force-out without first sending the required notification letter is a serious compliance failure. This mistake denies participants the opportunity to make a voluntary decision about their funds, such as rolling them over to an account of their choice. This can lead to participant complaints and potential legal challenges. Administrators must adhere to a strict, documented timeline for mailing notifications and allow the full response period to elapse before processing any involuntary distributions.

The process requires that for any mandatory rollovers, an IRA provider must be established in the recordkeeping system before initiating the transaction. Administrators, focused on the distribution itself, often forget this prerequisite setup step. This failure will cause the entire batch of rollovers to be rejected, leading to significant processing delays and manual rework. To avoid this, verifying the IRA provider setup should be a standard checklist item before beginning any force-out cycle.

Simple data entry errors on distribution forms, such as a misspelled name, incorrect Social Security Number, or an outdated address, are a primary cause of failed transactions. These mistakes result in returned checks, rejected transfers, and an inability to open the new IRA, creating significant administrative rework. To prevent this, data should be validated against a primary source; AI-powered tools like Instafill.ai can eliminate manual entry errors by populating forms directly and can even convert non-fillable PDF forms into interactive ones.

Mandatory distributions are only permitted for terminated participants, but this relies on their employment status being current in the recordkeeping system. If an administrator uses a stale data file, they risk attempting to force out an active employee (a compliance violation) or a rehired employee. To prevent this, it is critical to generate a fresh participant data report and cross-reference it with the latest HR and payroll records immediately before initiating the force-out process.

The rules clearly state that Roth funds must be rolled into a Roth IRA and non-Roth funds into a Traditional IRA. A common mistake is to fail to properly segregate these money types in the distribution instructions, which can cause them to be incorrectly combined or sent to the wrong type of account. This creates a significant tax and compliance issue for both the plan and the participant. Administrators must ensure their data files and instructions clearly distinguish between Roth and non-Roth balances for every affected participant.

A Plan Administrator, particularly one new to the plan, may incorrectly assume the mandatory distribution process is fully automated by the recordkeeper. This leads to complete inaction, allowing low-balance accounts to accumulate in the plan, which increases costs and fiduciary risk. To avoid this, administrators must review their service agreement to confirm whether they have elected 'Automated Mandatory Distribution Services' or if they are responsible for manually managing the entire process.

Administrators may misunderstand the auto-portability feature and incorrectly inform participants that all their funds will automatically move to their next employer's plan. However, the service explicitly excludes Roth IRA balances and after-tax basis amounts from being portable. This miscommunication sets false expectations for former employees. It is crucial for administrators to understand these limitations and communicate clearly that only specific pre-tax funds are eligible for the auto-portability service.