EGTRRA Changes to Involuntary Cash-out Rules - Effective Date?

[Guest sgb]

I understand that EGTRAA changed the involuntary cash-out rules to require a default option of a direct rollover to an employer established IRA for distributions exceeding $1,000.

However, I have been advised that the effective date for this change has been delayed from 1/1/2002 until the point that the IRS provides additional guidance on this.

Does that mean that we can continue to process involuntary distributions for $1,000 + to $5,000 as usual until we hear from the IRS on this? If so, where can I find documentation on this?

Thanks for any input!

[MGB]

There has been no "delay" and there never was a 1/1/2002 effective date.

EGTRRA itself says that this provision is not effective until the Department of Labor (not the IRS) issues final regulations on the fiduciary responsibilities with this transaction of setting up an IRA for the participant.

Personally, I don't expect this for a couple of years (the DOL is not very quick with regulations).

You can completely ignore this provision until the DOL issues final regulations and continue doing what you were doing before.

If you want to see my write-up on the issue (of course, EGTRRA itself is very clear, too, but I don't have a link to the law), go to: www.milliman.com

Click on Publications/Employee Benefits/Legislative Information Bulletins and pick any of the EGTRRA LIBs (there are three versions depending on type of employer).

[david rigby]

As usual, comments by MGB are correct and succinct.

However, I am less optimistic than his "couple of years". I don't expect regs in less than 3 years.