Non-Spousal beneficiaries ability to transfer account balance to another qualified plan.

[FundeK]

Can anyone comment on the following excerpt from Sal's ERISA Outline book?

Chapter 7: Taxation Rules - Section XIV (Death benefits): Part D (Rollover by surviving spouse)

9. Elective transfer of a beneficiary™s inherited benefit. IRC §411(d)(6)(D), as added by EGTRRA §645, allows an elective transfer from one defined contribution plan to another, where the transferee plan need not protect the forms of payment options that were available under the transferor plan. This rule is effective for transfers made on or after January 1, 2002. See Section III (Part D.3.) of Chapter 6 for more details. The statutory language refers to a participant or beneficiary consenting to such an elective transfer. Thus, after 2001, a nonspouse beneficiary is able to have inherited benefits under a qualified plan electively transferred to another qualified plan, even though a rollover option would not be available.

If I am reading this correctly, a non-spousal beneficiary could potentially (if allowed in plan documents, and all other requirements are met) transfer their inherited benefit to their own qualified plan and avoid tax consequences.

It doesn't seem right to me. I attended NUMEROUS EGTRRA recap sessions, and I don't remember this coming up once. I would think it would have been big news. I obviously need some help understanding this one!

[Belgarath]

I agree with Sal. The Conference Committee Report specically discusses both participants and beneficiaries when discussing the reason for the change and the explanation of provisions, so I believe the inclusion of beneficiaries in the 411(d)(6)(D) addition was intentional.

[FundeK]

Thank you! Is there somewhere I could access the Conference Committee Report online?

[Harwood]

I saved the Conference Report based upon a link this site provided back in 2001.

Attached is the section in question [i hope it is attached]

Conf_645.pdf

[FundeK]

Please bear with me....

So, in the situation I currently have, the participant passed away. Participant's daughter would like to maintain tax deferred status. She is asking whether she can transfer the account balance into her retirement plan account.

I am really confused because the voluntary transfer language is only mentioned in connection with the elimination of an optional form of benefit. Does the plan need to be amending to eliminate an optional form of benefit for the participant or beneficiary to have the ability to transfer the funds to another retirement plan, or can they do it at any time there is a distributable event that is not eligible for rollover?

Thanks for your assistance!!

[FundeK]

Please help!!! Can a non-spousal beneficiary transfer their inherited benefit to another qualified plan (Avoid tax consequence) if both plans allow transfer?

[Harwood]

http://benefitslink.com/modperl/qa.cgi?db=qa_estate_ira&id=3

[Appleby]

Good reference Harwood; but it refers to an IRA-

I disagree with Sal (did I hear a Roll of Thunder )- just kidding… It appears that this rule, that allows a non-spouse beneficiary to transfer inherited assets between qualified plans, applies only in the case of a merger or similar type of transaction, where the transaction does not result in the plan being terminated and therefore requiring participants to distribute their assets. If the merger provides that participants’ assets are transferred to the new plan, then beneficiaries’ assets may also be transferred to the new plan. The option is also available under multiple employer plans.

It would not apply under other circumstances. For instance, if your client inherited assets from his brother who was an employee of Merrill and had assets in Merrill’s DC plan, and your client is self employed and maintains a DC plan for his business, your client could not transfer the inherited assets to his DC plan

[Appleby]

Just a follow-up ...

…if the plan does not allow the daughter to distribute the assets over her life expectancy, she may consider using the assets to purchase a tax-deferred annuity, thereby deferring taxes…assuming the IRS would make the same favorable ruling on her behalf as they did in PLR 200244023 . Of course, considering that a PLR can be costly, if the inherited sum is small, it may not be worthwhile.

[RTK]

I am not sure that the requirement of the IRS Regulations that the transfer be made in connection with an acquisition, merger or other similar transaction involving a change in the employer continues under EGTRRA 411(d)(6)(i). Also, I think 411(d)(6)(ii) says only that (i) can be applied to a plan merger, not that a plan merger is required to apply (i). That said, I have not seen anything addressing this, nor have I have written any of my plans or amendments to provide for it.

[Belgarath]

After thinking about this further, I'm inclined to reverse my original opinion, and disagree with Sal as well. I think Appleby has the right idea.