Rollover from a designated Roth account

[Guest bdemalignon]

Here is the issue: plan #1 is terminating (and forcing distributions), and employees will become participants in plan #2 (and rolling over account balances, including some designated Roth accounts)...here's the problem....plan #2 does not currently have a Roth feature and will not be able to put one in place anytime soon. Almost all of the participants have MAGI of over $100,000 so can't rollover to a Roth IRA until 2010. Can plan #2 simply separately account for the amounts attributable to the designated Roth accounts and accept the rollovers?

[ERISAnut]

The MAGI limit does not apply to rollovers from Designated Roth Accounts to Roth IRAs.

[Guest bdemalignon]

The MAGI limit does not apply to rollovers from Designated Roth Accounts to Roth IRAs.

If only that were true...

http://benefitslink.com/boards/index.php?s...amp;hl=rollover

[rcline46]

It takes only 24 hours for an amendment to a plan to permit ROth Accounts. If the atty/TPA cannot do it in that time frame due to your emergency, fire them. Strong opinion to follow.

[Guest bdemalignon]

It takes only 24 hours for an amendment to a plan to permit ROth Accounts. If the atty/TPA cannot do it in that time frame due to your emergency, fire them. Strong opinion to follow.

It's not the amendment that's the problem, it's setting up the payroll to take care of putting the Roth program in place. It's a very big employer and a complicated payroll system. In addition, the amendment would need to go through several levels of approval to comply with the company's corporate governance requirements- it simply can't be done in a day. Or not done properly.

[masteff]

So don't add it for current participants as a contribution option. No reason you can't amend the plan to allow rollover and separate accounting of designated Roth monies but to not enable current participants to make designated Roth contributions. They're not tied hand-in-hand.

It should really be two, maybe three, very minor changes in your plan text.

[Guest bdemalignon]

That's exactly what we're hoping to do. However, the vendor has said that they don't think that that can be done because of a provision in the 402A final regulations, explained in the preamble: "In response to comments, the definition of designated Roth account has been revised to clarify that the definition only includes accounts under a plan to which designated Roth contributions are made in lieu of elective contributions or deferrals. Thus, the final regulations clarify that a distribution from a designated Roth account may only be rolled over to a section 401(k) plan or section 403(b) plan if it has a designated Roth program."

I'm hoping that this provision doesn't mean that you have to have an active Roth program, but I'm not sure the IRS would agree.

[masteff]

1) never rely upon a vendor for legal advice. they're in CYA mode. they're simply on record now that they warned you in case it goes wrong later.

2) in light of that bit in the preamble, it's hard to decide from the Code and Regs whether a designated Roth program mandates that active employees be allowed to make Roth deferrals or if a program can be established by satisfying the separate accounting requirements for Roth accounts.

3) this is worth spending a few bucks to get a proper ERISA atty to render an opinion.

[ERISAnut]

The MAGI limit does not apply to rollovers from Designated Roth Accounts to Roth IRAs.

If only that were true...

http://benefitslink.com/boards/index.php?s...amp;hl=rollover

I think it is interesting that a rule such as Reg 1.402A-1, Q&A 5(a) that has been implemented at the time the Roth 401(k) component was established is somehow determined to be subordinated by other rules referring to the ability to roll over any amounts from qualified plans to Roth IRAs.

I am no longer with the DOL. However, in my current line of work, I haven't come across any financial institutions that have even contemplated a contrary opinion. This is interesting though, as I never even knew such debate existed.