rollover paperwork

[Guest doh5557]

We are getting a lot of feedback from clients on what we require for participants to rollover money into our qualified plan.

When a participant rolls money into our plan, we require the partcipant to provide a copy the letter of determination from the plan the money is coming from or a statement from the former plan administrator that the funds are coming from a qualified plan.

People are telling us that the Schwabs and Fidelities of the world are not requiring this. Are we out of date with our requirements? What protection do we need to make sure that money being rolled over to our plan is coming from another qualified plan?

[ETA Consulting LLC]

You're not out of date. It's a good procedure you have. Keep in mind that there are different standards between qualified plans and IRAs. I wouldn't ask for this type of paperwork for an individual to rollover an amount to an IRA. However, in a qualified plan, your procedure seems appropriate.

Good Luck!

[Guest doh5557]

CURIOUS AS TO WHY A FIDELITY OR SCHWAB WOULD NOT REQUIRE THIS SAME INFORMATION WHEN ACCEPTING ROLLOVERS? That is the complaint we are hearing.... 'Schwab doesn't require this much information, why are you' ?'

[QDROphile]

Why do Fidelity and Schwab do paperless loans?

Why does the Fidelity system fail to allow compliance with QDRO rules?

The asnwer about rollovers is that the risk is low, enforcement is lax or nonexistant, and it is the fiduciary, not the service provider, that is responsible for the mimimal level of inquiry about rollover eligiblity. A spineless fiduciary gets what the vendor prefers.

You should look at the IRS guidance about due diligence to decide your policies.

[rcline46]

I am in the midst of a plan termination filing and the IRS requested proof that the rollovers on the 5310 came from a qualified plan. If we did not have proof it might get sticky.

[ETA Consulting LLC]

After a while, we all learn two things in this industry: 1) The rules and applications; 2) Relationship Management. I've gotten tons of the same questions over time. I began to understand that the individual asking them doesn't know, but is hearing different things from different places. This is merely an opportunity to explain to that individual why you take the approach you do; and why they should appreciate that approach. They are right to ask, but how you respond will determine whether they believe you or someone else. Eventually, it will become second nature; we can disagree without being disagreeable

Good Luck!

[mbozek]

CURIOUS AS TO WHY A FIDELITY OR SCHWAB WOULD NOT REQUIRE THIS SAME INFORMATION WHEN ACCEPTING ROLLOVERS? That is the complaint we are hearing.... 'Schwab doesn't require this much information, why are you' ?'

Because there is no risk. The IRS has stated that a receiving plan does not have to request a copy of the determination letter in order to determine that the contribution is a valid rollover contribution. If the plan accepts a rollover later determined to be invalid there will be no advere consequences, if at the time of the RO the plan administrator reasonably concludes that the contribution is a valid rollover contribution and distributes the contribution and any earnings if at a later date the rollover contribution is determined to be invalid. See reg. 1.401(a)(31)-1 Q/A-14.

[masteff]

The stated standard is "the plan administrator of the receiving plan reasonably concludes that the contribution is a valid rollover contribution". Since some employees don't consult before bringing in a check, my first place to look was the check and accompanying documentation. If I could satisfy myself from that then I would stop there (eg, name of disbursing plan, indications of taxable nature of the money, the words "rollover distribution", 1099-R codes, "special tax notice", etc). Sometimes, if you ask, the participant received a statement with the check that has all the evidence you need. But if I wasn't satified, then we had a simple form for the other plan to sign off on (basically the statement from former plan that the original post mentioned).

[Belgarath]

As prior posts have outlined, you are not required to get a copy of a determination/opinion/advisory letter.

That said, there is nothing wrong with requiring it. Undoing an invalid rollover can by a royal pain, so a little extra caution up front isn't necessarily a bad thing.

As an aside, your plan could be amended to prohibit accepting rollovers anyway, so an undiplomatic reponse might be to point that out, and tell them if they don't like your rules, go roll it somewhere else! (Pardon my crankiness - this time of year employee griping always begins to get on my nerves...)

[Guest doh5557]

CURIOUS AS TO WHY A FIDELITY OR SCHWAB WOULD NOT REQUIRE THIS SAME INFORMATION WHEN ACCEPTING ROLLOVERS? That is the complaint we are hearing.... 'Schwab doesn't require this much information, why are you' ?'

Because there is no risk. The IRS has stated that a receiving plan does not have to request a copy of the determination letter in order to determine that the contribution is a valid rollover contribution. If the plan accepts a rollover later determined to be invalid there will be no advere consequences, if at the time of the RO the plan administrator reasonably concludes that the contribution is a valid rollover contribution and distributes the contribution and any earnings if at a later date the rollover contribution is determined to be invalid. See reg. 1.401(a)(31)-1 Q/A-14.

I think there is a risk. True that regulations say that a letter of determination is useful but not necessary, but they go on to give examples that would help determine if they can 'reasonably conclude' that it is a valid rollover, such as a certification from the prior administrator stating qualified status of plan and no knowldege of anything that could affect qualified status. So without that type of information, unless something changes in the regulations, not sure how else a plan administrator could conclude that the rollover is qualified money. The participant generally has no idea regarding qualification... the plan name is not a valid recognition of a qualified plan... the prior plan could be not timely amended, or many other things that could affect its qualification.

[ETA Consulting LLC]

Keep in mind that, technically, a determination letter is NOT a requirement for the plan to be qualified; it's just prudent to have one. So, "requiring" it be a determination letter would be inconsistent. I've had an instance where I showed the SPD, because I couldn't obtain a determination letter (or opinion letter). The key is just not to turn a blind eye.

Good Luck!

[masteff]

I think you also need to consider the intent of the provisions in EGTRRA which greatly broadened rollovers between various types of plans. The IRS has a fairly clear mandate from Congress to facilitate the movement of monies from plan to plan and account to account. The worst case scenario under the 2nd part of Q&A-14 is that the receiving plan has to boot out any rollover that ultimately is determined invalid. The receiving plan has no risk of disqualification so it has no reason to be a hard case about screening incoming money. Granted, you are the one who has to be satisified with respect to the plans you administer. Just be careful that you're not overstating the actual risk or what that risk is.

As to the people who say "but what about Fidelity/Schwab etc", the IRS is a great scapegoat. "that's between them and IRS, I just know that if the IRS ever knocks on my door that I'll have to show that I checked whether it was a valid rollover."

As to getting a statement from the former plan, if you're not doing so, I would advise having your own fill-in-the-blank form that can be easily signed and faxed back to you. It goes over much better than "you need to ask them for a letter".

[pmacduff]

In light of this thread - I'm sure I'm all wet but I thought that the burden of proof that an incoming rollover was from a qualified source (whether it be an IRA, prior plan, 403(b), etc.) ulitimately lies with the participant.

In other words if the Plan accepts rollovers and the participant represents the incoming $$ as rollover funds from an acceptable source, the receiving plan has no worries....not true??

[mbozek]

In light of this thread - I'm sure I'm all wet but I thought that the burden of proof that an incoming rollover was from a qualified source (whether it be an IRA, prior plan, 403(b), etc.) ulitimately lies with the participant.

In other words if the Plan accepts rollovers and the participant represents the incoming $$ as rollover funds from an acceptable source, the receiving plan has no worries....not true??

Q/A-14 protects the receiving plan from adverse tax consequences as long as the Plan admininistrator reasonably concluded that the rollover is a valid rollover contribution. There is no requirement to have a formal review procedure. Information documenting that the transferring plan is an eligible plan can be obtained in several ways such as asking the participant for the most recent account statement or retirement benefit estimate, the request for distribution that the participant signed to elect a RO, a statement listing the RO amount, the plan information from the SPD, 402f notice, etc which contain information to substantiate that the transferreing plan is an eligible plan. Some plan information is available on line.