Documentation for Rollover

[Remote Kathleen]

So this is the 2nd time this has happened in 2 days.  I have a large financial institution demanding that I send them the Determination Letter for a plan that has less than 10 participants in order to roll over money to an IRA on behalf of an old employee.  These plans are small and do not have their own Determination Letters with their name on it (I do not want to start sending around my company's Opinion Letter).  The financial institutions refuse to accept any other documentation.  Is anyone else having this problem?  Possible solutions?  Thanks!

[Mike Preston]

Why do you have concerns about sending out a copy of the advisory letter? It's kind of public information isn't it?

 

[Peter Gulia]

A list of sponsors of IRS-preapproved documents is public information and available at the IRS’s website.  For example: https://www.irs.gov/pub/irs-tege/ppa_listdc3.pdf.  An opinion letter is on an IRS form.

I’m curious: If a plan deciding whether to accept a proposed rollover contribution receives a document sponsor’s IRS opinion letter as some evidence that a user’s plan would be a tax-qualified plan, what do they ask for as evidence that the distribution-paying plan’s sponsor adopted the IRS-preapproved document?

[Remote Kathleen]

Thanks Peter!  Yes, I was thinking the same thing.  Aren't there better ways to tie a distribution from a plan to the status of that plan?  

[EBECatty]

Rev. Rul. 2014-9 allows receiving plan administrators to check the distributing plan's Form 5500. As long as Code 3C (plan not intended to be qualified) is not listed on the distributing plan's 5500, the plan administrator of the receiving plan can reasonably conclude the rollover is valid and comes from a qualified plan (absent evidence to the contrary).

By its terms, the revenue ruling only applies to plan administrators of receiving plans that are qualified under section 401(a), but I think the same logic could apply to an IRA custodian receiving a rollover from a qualified plan.

[Peter Gulia]

Following Revenue Ruling 2014-9, 2014-17 Internal Revenue Bulletin 975 (April 21, 2014), it’s feasible to “reasonably conclude that a potential rollover contribution is a valid rollover contribution” without looking to an IRS letter.

https://www.irs.gov/irb/2014-17_IRB#RR-2014-9

 And the IRS’s website explanation includes this:  “It’s not necessary to obtain a letter from the distributing plan when its qualified status can be checked using the online Department of Labor filing search.”

https://www.irs.gov/retirement-plans/verifying-rollover-contributions-to-plans

For most § 401(a)-(k) and § 403(b) plans, one looks to Form 5500 data.  If the paying plan’s most recent Form 5500 shows any characteristics code that begins with “1” or “2” and does not show code 3C, treat the paying plan as an eligible retirement plan.

If an investment or service provider uses a database repackaged from Form 5500 reports, this look-up can be automated.

You described a situation about an IRA, which one imagines might not be ERISA-governed.

For an employment-based retirement plan, it’s feasible for a service provider to use such a method with no discretion; instead, a plan’s administrator would instruct its service provider to follow a written procedure the plan administrator approves.

I don’t know which of the investment and service providers uses such a method.

A custodian for a truly individual IRA should be willing to accept good-enough evidence that a rollover contribution is from an eligible retirement plan; if it’s not, the error harms no one but the IRA holder.

[Bird]

All good and accurate information.  Now you can decide whether you want to have an open-ended argument with the box-checkers at large financial institution, or you can provide them with your advisory letter, which as noted is public information, so they can check their box and move on.

[Cardscrazy]

I give them a copy of the determination letter.  I didn't bother to explain why the determination letter is so old since then I'd have to explain that the IRS doesn't give out determination letters anymore.  They didn't ask about that, so maybe like Bird said, they're just checking a box.  I've attached a redacted copy of my standard letter.  Anybody want to help me write a better letter?  

Expl ESOP to 401k Verification Letter_Redacted.pdf