rollover transactions

[Guest brookdaletsa]

Re:FRANK V. AARONSON et.; al. CA 2nd 96-9456 decided July 18,1997

The Congress has recognized that key points of law were overlooked or misapprehended in FRANK V. AARONSON. The Court of Appeals decison in this matter has prompted a specific legislative "clarification" that the early distribution triggering events of paragraphs (7)(A)(ii) and (11) of section 403(B) DO NOT apply to eligible rollover distributions. Section 1601(d)4(A) of Taxpayer Relief Act of 1997 as amended by Title VI Section 6016(a)(2)(A)(B) of Internal Revenue Service Restructuring and Reform Act of 1998.

Why are 403(B) carriers still requiring an early distribution triggering event before one may effectuate a rollover.?

[david shipp]

In tracking back through the legislation, you are correct that IRSRRA '98 section 6016(a)(2)(A)&(B) amend TRA'97 section 1601(d)(4). However, the purpose of the TRA'97 section is to amend SBJPA section 1450 which deals with TSAs inappropriately purchased by Indian Tribal Governments.

Such entities are not eligible to sponsor TSAs but the law was not totally clear in that area and a number of TSAs were sold to Indian Tribes. The above sections allow rollovers from Tribal "TSAs" without regard to a distributable event. The amendments are not generally applicable to all TSAs.

[This message has been edited by david shipp (edited 10-23-98).]

[Guest brookdaletsa]

403(B)(7)(A)(ii) and (11) have NEVER governed rollover transactions. The specified distribution triggering events governing eligibility for rollover treatment under 403(B)8 was REPEALED effective 1/1/93. PL 102-318, TITLE V SECTION 521(B)(13)B, 106 stat. 311. Unemployment Compensation Amendments of 1992 (UCA'92). This is the statutory basis for the legislative clarification that early distribution events DO NOT GOVERN ROLLOVER TRANSACTIONS.An eligible rollover distribution is not NECESSARILY an early distribution as the Court affirmed. An ERD is simply a distribution and rollover contribution to another TSA or IRA made at the discretion of the plan participant.The use of the early distribution events under 403(B)(7)(A)(ii)and

(11) to govern rollover amounts renders the repeal of the triggering events under 403(B)8 meaningless. When will 403(B) carriers begin to comply with the law? The rollover rights of 403(B) participants have been violated ever since the triggering events under 403(B)8 was repealed on January 1, 1993. AFTER NEARLY SIX YEARS THE CONGRESS HAS CLARIFIED THE ISSUE. IT IS NOW TIME FOR 403(b)CARRIERS TO COMPLY WITH THE LAW.

[This message has been edited by brookdaletsa (edited 10-26-98).]

[This message has been edited by brookdaletsa (edited 10-28-98).]

[david shipp]

Frank v Aaronson gives a very thorough analysis of the law as it regards distributions from TSA programs. First, and foremost, any distribution from a TSA program must be permitted under the Code to avoid negative tax consequences to the program as a whole. Once a distribution is permitted, the rollover rules apply.

By reading Aaronson, you also understand that Rev. Rul 90-24 can be used to allow a direct TSA-to-TSA transfer to allow for investment flexibility.

What you can't do is take a "pre-trigger event" distribution to do with as you please. That is part of the "deal" in deferring taxes on your contribution.

As I indicated previously, if you will reread TRA'97 section 1601(d)(4), you will see that it is a "clarification" of SBJPA section 1450(B) and that section 1450(B) is a provision specifically targeted to Indian Tribes. It is not a provision of general applicability. As a result, the provisions of TRA'97 and IRSRRA'98 which modify SBJPA 1450(B) are also targeted and do have general applicability.

Please understand that I don't have a dog in this fight. I am only giving you my best interpretation of the law. Since you have the ability to make investment changes through the RR 90-24 mechanism, I can only assume that you wish to make a withdrawal from your TSA for other purposes that are not triggering events. The law, as currently constituted, does not allow such distributions and it would be inappropriate for your TSA sponsor to jeopardize other TSA participants by allowing them.

To put your mind at rest over the issue, I would suggest that you contact a employee benefits attorney in your area.

[Guest brookdaletsa]

I have indeed consulted with two benefit attorneys. I would not be as confident in my own PERSONAL RESEARCH on the issue if they disagreed with me.

Does not the participant of an ERD to another 403(B) account remain subject to the early distribution triggering events of paragraphs (7)(A)(ii) and or (ll)? The answer is YES!!! Is it not,therefore,totally devoid of all logic to require satisfaction of one of those events in order for the distribution to be afforded rollover treatment.? The Congress thought so. WE NOW HAVE ITS CLARIFICATION THAT THE EARLY DISTRIBUTION PROVISIONS OF PARAGRAPHS (7)(A)(ii) and (11) DO NOT CONFLATE WITH THE ROLLOVER PRVISIONS OF PARAGRAPHS (8) AND (10).

The Indian tribal governments were simply granted special authority through 12/31/97 to allow their 403(B) participants to rollover their accounts to the Tribal governments' 401(k)Plan. Subsequent to 12/31/97 they can only rollover to another 403(B) or IRA.

A STATUTORY CLARIFICATION IS NOT NEW LAW. IT IS AN AMPLIFICATION OF EXISTING LAW.

Do you really believe that the Congress intentially wanted to "clarify" that the non- application of the early distribution events to rollover transactions pertains ONLY to those 403(B) Plans maintained by Indian tribal governments.?

[david shipp]

----Does not the participant of an ERD to another 403(B) account remain subject to the early distribution triggering events of paragraphs (7)(A)(ii) and or (11)? The answer is YES!!!----

In fact, the answer is "no" if there is in fact a "distribution."

Under RR90-24, which deals with the issue of retaining distribution limitations in the event of a TRANSFER between TSA programs , the mechanism is a direct TSA-to-TSA transfer (i.e., the participant can't get his hands on the $$). The Rev.Rul specifically indicates that this is NOT considered to be a distribution. It is not subject to the distribution limitations, provided the new TSA retains the required limitations, BECAUSE the participant cannot get the $$.

If the participant does have access to the $$ it is a real distribution. In that case the distribution limitations DO apply. There is no mechanism by which the IRS can guarantee that the distribution limitations will be reapplied where an amount is rolled over between TSAs (as opposed to a TSA-to-TSA transfer). It should be understood that roll over and transfer have distinct meanings and can't be used interchangably.

----Do you really believe that the Congress intentially wanted to "clarify" that the non- application of the early distribution events to rollover transactions pertains ONLY to those 403(B) Plans maintained by Indian tribal governments.? -----

This is exactly the issue. Congress did not clarify that the early distribution events do not apply to rollover transactions. The Aaronson case explains that.

The act sections you refer to deal only with the issue of Indian Tribe TSAs and their ability to sponsor TSAs and the ability to roll to Indian 401(k) plans. Look at the committee reports for each of the three acts and you will see that they are provisions tailored to Indian TSAs.

Since the sections you refer to are not of general applicability, nothing has changed the Aaronson court's analysis.

It has been a pleasure debating the issue with you and I wish you the best.

[This message has been edited by david shipp (edited 10-29-98).]

[Guest CVCalhoun]

If I may step in here, I believe the key problem may be one of nomenclature. As David mentions, the IRS distinguishes between a transfer of funds from one TSA to another and a rollover. However, most ordinary human beings think of these events as being the same thing--especially now that most rollovers take the form of a check going directly from the old plan to the new one.

A rollover cannot take place until there is a distributable event because (in theory at least) a rollover consists of a distribution from the old TSA followed by a recontribution of the same amount to the new TSA. However, if you were to ask a 403(B) carrier whether you could transfer money from one TSA to another without an early distribution triggering event, the answer would be yes. If you are just trying to move the money from one TSA to another, you might try this approach.

[Note: This message was edited by CVCalhoun]

[Guest brookdaletsa]

A "distribution" is required in a 90-24 transfer to the same extent as a rollover. How else can funds move from point A to point B.? Both are viable methods of effectuating non-taxable distributions. There are no reporting requirements with a 90-24 tranfer;while a rollover requires reporting.

FRANK V.AARONSON WAS DECIDED PRIOR TO THE RECENT LEGISLATIVE CLARIFICATION. THE CONGRESS HAS OVERRULED THE COURT.

LIKE THE COURT YOU ARE CONFUSING "PAID OR MADE AVAILABLE" DISTRIBUTIONS WITH ROLLOVER DISTRIBUTIONS. AN EARLY DISTRIBUTION IS PAID OR MADE AVAILABLE TO THE DISTRBUTEE. A ROLLOVER DISTRIBUTION IS PAID TO A RETIREMENT PLAN ON BEHALF OF THE DISTRIBUTEE. THE FIRST IS TAXABLE THE LATTER IS NOT.

[Guest CVCalhoun]

Well, I think all points of view on this one have been aired, so I'm closing the topic. Thanks to everyone for an interesting discussion!