Rollover but not participant

[Guest Fred Maynard]

Does an employee have to become a participant to make a rollover into a 401(k) plan? The plan says that an employee can make a rollover without being a participant, but this seems odd.

[Jim Chad]

Corbel's Prototype Adoption Agreement has a question in it that asks if the person needs to be a Participant to do a rollover in. I think this is like having immediate eligibility for deferring and a one year wait for Match contributions.

I would think this would be a benefit, right or feature which must be nondiscriminatory.

[Guest Fred Maynard]

Thank you for your help. It helps to know that this is a standard type of option.

[mbozek]

IRS permits non particpant to rollover distribution to plan before becoming eligible to participate since rollover considered a segregated account under plan.

[RCK]

We've been doing it in our plans for several years (and plans do of course say that). It is available to everyone. It was pretty attractive to new employees who were being cashed out of their prior plans, because they did not have to wait or find a conduit IRA. It seems like many more people ask about it than actually follow through though.

RCK

[actuarysmith]

This is a question that you really should run by the client when setting up the plan (as opposed to making the selection for them).

We have had the experience of including this provision, having a new hire roll funds, shortly thereafter terminate.

We then dutifully provide the distribution forms to process the distribution out of the plan. The employer then gets a bill for the cost of the distribution to a Non-participant. Get the problem??

This may be less problematic in the future now that the IRS & DOL have apparently agreed that a plan sponsor can charge this distribution fee to the specific participant.

One other question that follow the rollover question in the prototype is whether or not they can take a distribution at any time, or only if they otherwise have a distributable event.

We normally choose the distribute anytime rule - we have felt that there would be Heck to pay if a participant decided that they later wanted the rollover funds moved but hadn't terminated employment,etc.