IRS Updates Rollover Distribution Notices:

As noted in the June 2018 edition of The Speed Reader, as of that date the IRS’s safe harbor explanations for eligible rollover distributions did not include recent rules regarding qualified retirement plan participants who have an outstanding plan loan when their employment with the plan sponsor terminates or when their plan terminates. Lo and behold, on September 18, 2018, via Notice 2018-74 (the “Notice”), the IRS published updated versions of those safe harbor explanations for eligible rollover distributions under Internal Revenue Code (the “Code”) Section 402(f).

The Notice updates the two safe harbor explanations previously provided in Notice 2014-74: one for distributions that are not from a designated Roth account, and one for distributions that are from a designated Roth account. The Notice’s explanations incorporate the following law changes:

  • The above-referenced Tax Cuts and Jobs Act of 2017’s extended rollover deadline for outstanding participant loans, under which a participant can roll over the balance into an eligible retirement plan by his or her tax filing due date (including extensions) for the taxable year in which the employment termination or the plan termination occurs.
  • Revenue Procedure 2016-47 provided guidance addressing waivers of the 60-day rollover deadline contained in Code Sections 402(c)(3) and 408(d)(3). Specifically, that guidance provides a self-certification procedure that taxpayers can use to claim eligibility for a waiver with respect to a rollover into a qualified plan or IRA. Under that procedure, a plan administrator or an IRA trustee generally can rely on a taxpayer’s self-certification in determining whether a taxpayer has satisfied the conditions for a waiver of the 60-day rollover deadline.
  • Recent law affecting certain federal employees expanded the exceptions to the 10% additional tax under Code Section 72(t). That Section generally applies to qualified plan distributions to a participant that occur before the participant is at least 59 ½ years of age.

Plan administrators and benefits payors can customize either or both of the safe harbor explanations by omitting information that does not apply to their plan. However, both explanations should be provided to a participant if the participant is eligible to receive an eligible rollover distribution from both a designated Roth account under the plan and from an account other than a designated Roth account under the plan. Also, the Notice reminds us that plan administrators and benefits payors can satisfy Code Section 402(f) by providing an explanation that is different from one of the Notice’s safe harbor explanations. Of course, any such explanation must contain the information required by Code Section 402(f) and “must be written in a manner designed to be easily understood” by recipients.

Plan administrators may wish to discuss the Notice with the provider of their Code Section 402(f) notices.
Here is a link to the Notice: