Related Rollovers

[TC1]

We are moving a 401(k) from another provider to our platform.  The plan has both related and regular rollover.  We set up 2 separate money types to keep the funds separate.  I'm being told that I need to find out the prior sources that the related rollover came from, like deferral, match, etc.  I have never heard anything like this before.  Is this correct?   At prior employers, we never got this information, and I wouldn't know what to do with it if I had it.  Thanks. 

[Nate S]

If it's related then a whole host of restrictions can still apply regarding in-service distributions, hardship availability, and joint & survivor protections.  Most commonly restricted sources are safe harbor match, prior money purchase, and defined benefit/cash balance.

[Lou S.]

38 minutes ago, Nate S said:

If it's related then a whole host of restrictions can still apply regarding in-service distributions, hardship availability, and joint & survivor protections.  Most commonly restricted sources are safe harbor match, prior money purchase, and defined benefit/cash balance.

Why? They are rollovers not plan to plan transfers. I thought it was just Top Heavy that was an issue with respect to Related/Unrelated rollovers whether or not you include the balances.

[Lou S.]

The times I have seen separate source tracking required has typically been on In-Plan Roth conversions of some sort.

[Nate S]

1 hour ago, Lou S. said:

Why? They are rollovers not plan to plan transfers. I thought it was just Top Heavy that was an issue with respect to Related/Unrelated rollovers whether or not you include the balances.

Call it a plan-to-plan transfer, or a related rollover, it's still the transfer of monies from one plan of the same employer to another.

[Lou S.]

8 minutes ago, Nate S said:

Call it a plan-to-plan transfer, or a related rollover, it's still the transfer of monies from one plan of the same employer to another.

The big difference being one is employer initiated where the employee does not have control over the transfer of assets from one plan of the employer to another such as in a Plan Merger, as opposed to the employee making an affirmative election to roll their funds from one plan of the employer to another such as upon Plan termination of the first plan.

[Nate S]

3 minutes ago, Lou S. said:

The big difference being one is employer initiated where the employee does not have control over the transfer of assets from one plan of the employer to another such as in a Plan Merger, as opposed to the employee making an affirmative election to roll their funds from one plan of the employer to another such as upon Plan termination of the first plan.

Who says the prior recordkeeper was making the distinction?  All the OP asked was why you could need to know.

Since you're in that mode though, what if it was a negative election, whereby if the employee didn't direct the monies, the sponsor was going to transfer them?  What do you call that?  What actually happened was a sponsor directed transfer.  But, it was done in a situation where the employee had the option of control.

But as to the OP question above, it matters not.

[Bird]

I agree with Lou S. If it says "rollover" of either type, then you should be able to take that at face value and not worry about the sources. If it was MP money voluntarily rolled over, I'd like to think we would ID it as such and not call it rollover. Having said that, I believe we have a situation or two where we do call transferred money "rollover" because it is easier - but only if it doesn't really matter based on money type.

 

[pmacduff]

I have a few older plans where the client termed the Money Purchase Plan and most participants rolled those funds into the 401k PSP.  The MPP funds had J&S so we have always kept it separated as "related money purchase rollover".  when the client moved investment platforms we kept the source naming the same and have two rollover sources, one for unrelated and the other for the related MPP rollover funds.  never had any issues.

[Bird]

2 hours ago, pmacduff said:

I have a few older plans where the client termed the Money Purchase Plan and most participants rolled those funds into the 401k PSP.  The MPP funds had J&S so we have always kept it separated as "related money purchase rollover".  when the client moved investment platforms we kept the source naming the same and have two rollover sources, one for unrelated and the other for the related MPP rollover funds.  never had any issues.

But the gist of this thread is that if participants actually rolled the money over, having been offered all options and waiving the annuity benefit, then it lost the MP flavor and is not subject to J&S. If the money was transferred and they didn't have to waive the annuity benefits (and get spousal waiver if applicable), then it was something other than a rollover. We generally did these as mergers.

[Luke Bailey]

I'm pretty sure the term "related" is only used by IRS for making top-heavy determinations, as Lou S. stated. You can have "related" rollovers and unrelated, and you can also have related and unrelated plan-to-plan transfers. To be "unrelated" the movement of the account has to be both at the election of the employee and to a plan of a different employer. See Treas. Reg. 1.416-1, Q&A-T-32. 

[Nate S]

If you know the origination of the monies and you get to name the source, fine and dandy.  However, across multiple TPA's, and just about every unbundled recordkeeper out there; after a provider change, or just a few years that knowledge is lost.  OP isn't the originator, and merely asked what circumstances he needed to consider, not watch this devolve into a naming discussion. 

[Bird]

8 hours ago, Nate S said:

If you know the origination of the monies and you get to name the source, fine and dandy.  However, across multiple TPA's, and just about every unbundled recordkeeper out there; after a provider change, or just a few years that knowledge is lost.  OP isn't the originator, and merely asked what circumstances he needed to consider, not watch this devolve into a naming discussion. 

I for one thought there were a lot of important points brought out.  You started out by saying "If it's related then a whole host of restrictions can still apply regarding in-service distributions, hardship availability, and joint & survivor protections."  But if it was in fact a rollover, then none of those things apply, even if it is a related rollover. So the naming discussion was the key to the whole thread.

Now you're saying "...across multiple TPA's, and just about every unbundled recordkeeper out there; after a provider change, or just a few years that knowledge is lost" (effectively saying, I think, that it doesn't matter, or at least can't be tracked).