msimpson

Again, thank you. I'll take a look at that and see if I can make it all make sense.

Thank you. Can you tell me what part of 72 covers this? I'm trying to wrap my head around the legal authorities to make sure I understand the reasoning. Also, in the scenario I'm thinking of, the after-tax amounts will likely be distributed without any earnings. (They were a failed/incomplete attempt to purchase additional service credit in a governmental DB plan.)

Rev. Rul. 69-277 says it's okay to distribute voluntary after-tax contributions from a qualified plan at any time. This still appears to be good law, as it is cited as recently as in Notice 2004-12. How does this interplay with IRS Notice 2014-54? If a plan has both pre-tax and after-tax amounts in it, can a participant withdraw just the voluntary after-tax contributions? Or does 2014-54 require that any distribution (even if no "distributable event," meaning they are still employed, not over 59-1/2, etc.) be a pro rata mix of pre-tax and after-tax? I keep thinking there must be some way to withdraw just the voluntary after-tax, otherwise 69-277 is useless, but can't figure it out. Does it hinge on a "distributable event" issue? Any help would be appreciated!

In a follow up to my original post starting this chain, the IRS plans to issue Notice 2014-54 on October 6, 2014, revising its position on allocating after-tax and pretax portions when a distribution is split between mutiple destinations. It shows up in the BenefitsLink newsletter today (thanks, BenefitsLink!), but not yet on the IRS website. So they are finally responding to all the requests they'd gotten to change their position. Thanks for the feedback to date.

Thanks to everyone responding! This last post interests me in particular, as my question does relate to a DB plan where a participant may receive a full lump sum with a partial (direct) rollover rather than an annuity. Calavera, can you provide me with the citation/reason for the difference with a DB plan?

In the most recent model 402(f) notice published by the IRS in Notice 2009-68, the IRS took the position that if a participant elects a direct rollover of only a portion of an amount paid from a plan, with the rest paid to the participant, each payment has to include an allocable portion of taxable and nontaxable amounts. This interpretation created quite a stir, as it was different from what many practitioners were doing, and several groups asked the IRS to modify its interpretation on this point. As best I can tell, the IRS has not addressed these concerns. Have I missed something? If not, have folks changed their rollover procedures to reflect the new IRS position, or are they still permitting participants to designate direct rollover of taxable portions only and/or distribution of nontaxable portions?

If anyone has suggestions, or has developed a useful mechanism, for paying benefits (especially required minimum distributions) to incarcerated participants in, or beneficiaries of, a governmental plan, I would appreciate hearing them! (Note is a governmental plan, so not subject to ERISA.) West Virginia law arguably requires the appointment of a conservator or other legal guardian before sums can be paid to an incarcerated individual, but does not specify who is to pay the costs associated with this; if the recipient is not willing (due to the small dollar amount of a distribution) or financially able (due to the costs of petitioning for court appointment/approval of a conservator) to arrange for the appointment of his/her own conservator, does the plan sponsor have the obligation to bear the costs to do so? We want to ensure the plan sponsor fulfills its fiduciary obligations, while minimizing cost outlay and the risk of a subsequent claim from the recipient that the funds were improperly paid out (if a conservator is not utilized). One idea we are considering is having the plan sponsor contract, for a fairly minimal sum, with a local attorney to serve as “conservator” for any such incarcerated recipients. Has anyone tried this approach? We’ve also heard that some states may appoint a sheriff or similar public official to serve in such capacity, but we are not aware of any similar provisions in WV, and so are left without this option. Any thoughts or suggestions welcome.

Is a 5498 filing required only for IRA's, or for any receipts of an eligible rollover distribution? (From the form, looks like only for IRA's.) I need to get more facts from my client as to the intended recipient of the direct rollover. My concern with "fixing" the 1099-R is that it may suggest that it was improperly reported in the first place. I do not want to subject them to penalty assessments for improper reporting, even though they have very good reasons for arguing that no penalty should apply.

Ordinarily I would think no the plan does not have to do anything, but for the fact that the plan now has actual notice of what occurred because the distributee contacted us. Does this make it our problem now? I don't know. (Thus, the post!)

I suppose that is one option, but not sure it will satisfy the IRS, or answer the client's questions regarding its reporting obligations.

Per a member's/distributee's request, a plan prepared a direct rollover check made payable to the eligible retirement plan, gave check to the distributee/plan member for delivery to the payee. The plan member somehow managed to cash the check, even though was not made out to him. Plan, of course, did not withhold mandatory 20% because it was a direct rollover. Distributee now comes back to plan and asks for a "corrected 1099" showing distribution as ? not sure what, but something other than a direct rollover. Questions: (1) should the plan correct the 1099R, since the one it issued was presumably correct base on available information? It had no control over the member's ability to improperly cash the check made out to the rollover plan. (2) if no corrected 1099R should be issued, does the plan have other reporting reuqirements relating to this set of facts, or is this solely a problem now for the member/distributee? (3) I do not believe the plan should be liable for failing to withhold, under 3405 regs, but can anyone offer additional comfort (cases, PLRs) for me/my client? Q7 of 31.3405©-1 does not contemplate this bizarre set of facts.

I have a question related to this stream, regarding when the mandatory withholding kicks in, or more specifically, when a plan might be permitted to begin mandatory withholding? My issue is, I advise plans with July 1 fiscal years who began offering nonspouse beneficiary rollovers in 2008 under the permissive language of PPA, which did not require mandatory 20% withholding if the nonspouse chose to receive the distribution directly. Thus far we have advised the plans to apply the elective 10% withholding to any nonspouse beneficiary distributions not directly rolled over. As I understand it, mandatory 20% withholding became applicable to nonspouse beneficiary rollovers with WRERA, and the amendment is effective for "plan years" beginning after 2009. Thus, for these fiscal year plans the mandatory withholding is not effective until July 1, 2010. (I note that the original PPA provision on nonspouse beneficiary rollovers which added 402©(11) was effective for "distributions" after 2006.) For 2010, must these plans continue elective 10% withholding on nonspouse beneficiary distributions that are not directly rolled over until June 30th, and then switch as of July 1 to mandatory 20% withholding? It would be much simpler if they could just implement the mandatory 20% withholding as of January 1, 2010, but I'm not sure the law allows it.