Related or unrelated rollover

[cpc0506]

Participant A was 'a key employee' for 2011 and passed away during 2011.

Participant B (also a key employee) is the beneficiary for Participant A. They are husband and wife.

Both participants were participants in the same plan.

Partcipant B rolls the distribution in 2011 from Participant A's account to his account in the current plan. Is this distriubiton considered a 'related rollover' or unrelated rollover? I am raising this question as how the rolloer will influence on top heavy testing.

Thanks.

[rcline46]

First - check the rules to see if a death distribution rollover is permitted to rolled into a qualified plan.

[BG5150]

Isn't just a beneficiary transfer w/in the plan? Or are there separate plans?

[cpc0506]

They were both participants of the same plan.

[BG5150]

So why isn't it just a in-plan transfer? I don't see it as a distribution and subsequent rollover in.

[cpc0506]

Am I overthinking this? Participant B took the distribution but opted to keep it in the plan. (like a rollover). Not sure what you mean by in-plan transfer. A 1099 will be generated for the deceased employee. Right?

[QDROphile]

I don't mean to hijack the post, but could you explain what you mean by an in-plan transfer? I have not encountered any plan provision that would allow amounts from participant A's account to be transferred to participant B's account without an intervening distribution. Maintaining an account for participant B as a beneficiairy account as participant A's beneficiary is OK, but I think such an account would need to be maintained as an account separate from the participant B account. Depending on how one defines "account" at a minimum the former participant A account balance woule be subject to different terms than participant B's account (e.g. the amount would be distributable). I suppose one could designate all amounts held for the benefit of B as B's "account," but that account would have to be broken down by attribute and the beneficiary account would effectively be recognizable. By contrast, a distrubution to B and rollover to B's account can fit normal document terms because a participant can have rollovers in the particpant's account and rollovers are specifically described by law. I am not aware of any legal underpinnings for how I imagine an in-plan transfer would occur.

[BG5150]

I'm just thinking back to my days at a big provider.

We would get instructions someone passed away and got the bene info. Would open an account for the bene and transfer the funds to that account and leave it there until they told us to move it.

I guess I never thought about 1099s which were done automatically.

Nowadays, we usually only get instructions when the bene is going to take the money out, so we are always issuing the 1099s.

[cpc0506]

I tend to agree with QDROphile. My question still remains, is the resulting rollover to the plan (even though it never really left) a related rollover or an unrelated rollover?

[Tom Poje]

Possibly this will help

Treas. Reg. §1.416-1, T-12 states the terms key employee, former key employee, and non-key employee include the beneficiaries of such individuals. Would the terms also apply to alternate payees under QDRO’s?

ASPPA answer: Although not specifically discussed in the regulations, it is presumed that the treatment of death beneficiaries under the top heavy rules would also apply to alternate payees under a QDRO. The alternate payee under a QDRO is treated as a beneficiary of the plan under ERISA and the tax code. In the §415 context, the IRS has taken the position that benefits under a defined benefit that are awarded to an alternate payee are counted as part of the participant’s benefits from the plan in determining whether the §415(b) limits are exceeded. See Notice 87-21, Q&A-20. It would seem appropriate to take a similar approach in the top heavy determination.

IRS response. The IRS agreed with our answer.

2011 ASPPA Conference #45

[masteff]

I'm just thinking back to my days at a big provider.

We would get instructions someone passed away and got the bene info. Would open an account for the bene and transfer the funds to that account and leave it there until they told us to move it.

I guess I never thought about 1099s which were done automatically.

Nowadays, we usually only get instructions when the bene is going to take the money out, so we are always issuing the 1099s.

BG - I see what you're thinking about the back office transfer to a bene account. I take the OP as the next step in the process. That the bene did a distribution and rollover so as to consolidate the two accounts into a single account. I saw this happen a few times.

I'd say Tom Poje has the winning answer yet again.

[david rigby]

I don't mean to hijack the post, but could you explain what you mean by an in-plan transfer?

I think QDROphile is correct here. It seems that this must be a distribution, with 1099. This should be the case even if the plan has the ability (and plan provisions) to record the distribution without any money being sent or a check produced.

[cpc0506]

So, based on what Tom has indicated, is my logic correct?

Partcipant A comes a former key the year following her death. The beneficiary takes the distribution in the year following her death, but keeps the funds in the plan as he is also a participant of the plan. Since the funds were from a 'former key', the funds are excluded from top heavy numerator and denominator.

[Bird]

I don't think it matters who they came from, it's who owns them and where they came from (plan of the employer or not). And the participant/beneficiary owns them, and they came from a plan of the employer, so they are part of the part/bene's account for TH determination.

[Bill Presson]

So, based on what Tom has indicated, is my logic correct?

Partcipant A comes a former key the year following her death. The beneficiary takes the distribution in the year following her death, but keeps the funds in the plan as he is also a participant of the plan. Since the funds were from a 'former key', the funds are excluded from top heavy numerator and denominator.

You keep saying "takes a distribution" and "keeps the funds in the plan" These, in my mind, are not compatible with each other.