402(f) Notice

[Guest L]

We have been using the same 402(f) notice that was originally issued way back when.

Are there any required updates to that document? Has it been changed?

If no changes are required, can we make discretionary changes to improve readablity and remove irrelevant content?

[chris]

The IRS published a model 402(f) Notice sometime ago(I believe it was in an Announcement but I can't remember the number right off). The text basically said that the 402(f) Notice provided was only a model notice and that it may have to be modified by the plan sponsor. The text also made mention of the fact that one could not use the enclosed model notice forever, but that it would need to be updated for changes in the law. I think the text of the pronouncement also stated that the plan sponsor could make changes to the actual text of the notice to make it easier to read or more easily understood by the participants. I'll try to find the cite for the IRS guidance.

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[Guest L]

Does anyone have a current sample?

[MWeddell]

Notice 92-48 is what chris is recalling. Because the tax law has changed, that notice says we can no longer rely on the safe harbor notice. Significant changes (I believe) were new types of IRAs which don't accept rollovers, the change in rollover treatment of hardship withdrawals, and the elimination at the end of this year of 5-year forward averaging.

The IRS has very informally confirmed that one cannot rely on the safe harbor notice in the March 1998 Enrolled Actuaries meeting gray book.

What really should happen is the IRS should clearly publicize that the old safe harbor notice doesn't work and publish a new one. It's been on their 1998 and 1999 priorities list but they've not gotten around to it I guess.

Yes, you can always have discretion to change it yourself: it was only a safe harbor notice, and you can modify it or draft your own as long as you meet the legal requirements for the notice.

Can't help you with a sample.

[stephen]

Has the IRS gotten around to providing a new sample notice yet?

Does anyone have any idea on when they will?

[KJohnson]

They did in early 2001--see the following link:

http://www.benefitslink.com/IRS/notice2000-11.shtml

I haven't reviewed it for use next year but because of EGTRRA changes (i.e. spousal rollovers to qualified plans, 401(a)/403(B) rollovers etc.) but it may already be misleading.

[Bob R]

Issuing a new 402(f) notice to take into account EGTRRA is a priority item for the IRS. But, I haven't heard any rumors as to when they expect to have it issued. My guess is that it will be out before the end of the year.

[Alf]

The 2001 act expanded rollover distribution rules and required 402(f) notices to include a discussion of the potential restrictions and tax consequences that may apply to distributions from the receiving plan that are different from the distributing plan.

Because these major changes have to be written into distribution notices beginning on January 1, 2002, the law requires plan administrators to make reasonable attempts to comply with the new notice requirements until the current version of the IRS safe-harbor notice in IRS Notice 2000-11 is updated.