Under SECURE 2.0, employer-sponsored plans can elect to include an automatic cash-out provision to distribute small retirement plan balances when the employee separates from service.
Qualified plans are not required to contain cash-out provisions that provide for immediate distribution of a participant's benefits without the participant's consent upon termination of participation if the value of the benefit is less than the statutory limit (under SECURE 2.0, $7,000 starting in 2024). Plans do have the option of adding a cash-out threshold if the threshold is not more than $7,000. If the threshold established is less than $1,000, the plan can merely cut a check for the participant's balance.
If the account balance threshold established by the employer is $1,000 or higher, the plan must automatically roll the amounts over into an IRA in the former employee's name (unless the former employee makes an affirmative election to receive the amount directly or have the amounts rolled over into another eligible retirement plan).