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Automatic rollovers


Guest EdShill

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Guest EdShill

Does 401(a)(31)(B) apply to government plans? The focus of that provision seems to be on the $5,000 cash outs permitted by 411(a)(11) and the provision incorporates the actuarial factors of that provision (and 417) to determine the $1,000 and $5,000 present value levels. Government and some church plans are exempt from 411. Does that mean that those plans don't have to provide automatic rollovers?

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From footnote 8 of the proposed EBSA regulations:

"The Treasury and the IRS have advised the Department that the requirements of Code section 401(a)(31)(B) apply to a broad range of retirement plans including plans established under Code sections 401(a), 401(k), 403(a), 403(b) and 457."

From footnote 7 of the final EBSA regulations:

"The staff of Treasury and IRS have advised the Department that the requirements of Code section 401(a)(31)(B) apply to a broad range of retirement plans including plans established under Code sections 401(a), 401(k), 403(a), 403(b) and 457. The Department notes that the safe harbor contained herein applies only to employee benefit pension plans covered under title I of ERISA. See infra note 20."

My impression is that the current IRS position is the automatic rollover rule applies to governmental plans. I believe that at least 2 law firms have asked the IRS to either exempt governmental plans from the automatic rollover rule or provide an extended effective date.

I'm sure other users of this board have a much better idea than I about what's going on with this at the IRS. I'd like to hear from them.

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mbozek:

"Exemption" is a poor choice of word. It is much less than clear to me that a governmental plan is an "eligible plan" as defined in 401(a)(31)(B)(ii), which states:

"(ii) ELIGIBLE PLAN.--For purposes of clause (i), the term 'eligible plan' means a plan which provides that any nonforfeitable accrued benefit for which the present value (as determined under section 411(a)(11)) does not exceed $5,000 shall be immediately distributed to the participant."

Because the "immediately distributed" concept does not apply to governmental plans, I would have thought the IRS would conclude that the automatic rollover rules do not apply to governmental plans.

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If govt plans were to be excluded from this provision then Congress would have exempted them, e.g., govt plans are not subject to nondiscrimination under 401(a)(4). Subjecting govt plans to mandatory rollover is consistent with requiring govt plans to permit a direct rollover under a31A. The reference to 411a11 is to define how the present value of the $5,000 nonforefitable is to be computed.

mjb

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mbozek:

I think I didn't state my question clearly. Assume a plan forces lump sum distributions to former employees at age 65 (which is normal retirement age) and a former employee's account balance is $4,000 at age 65. I assume the automatic rollover rule does not apply to the forced distribution to this employee at age 65. Do you agree?

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