In-service withdrawals of employee after-tax contributions

[Nassau]

My client is merging two plans and there are some rules with respect to in-sevice withdrawals that they have referenced below that I am not familar with. Please look at the clients provision and let me know if anyone has heard of this provision based on the information listed below.

In-Service Distributions – For in-service withdrawals of employee after-tax contributions which were contributed on or after the plan merger date, if the participant has not attained age 59½ and if after-tax withdrawals earned a match (e.g. for non-union employees were contributed from the first 5% of a participant’s compensation), then the participants’ contributions to the survivor plan will be suspended for 6 months. This suspension does not apply to withdrawals for employee after-tax contributions made before the plan merger date. This provision is needed to comply with a series of old IRS Revenue Rulings, namely Revenue Rulings 72-275, 74-55 and especially 74-56.

Based on the above information do the Revenue Rulings still hold true? and can participants' contributions in the surviving plan be suspended for 6 months?

[ETA Consulting LLC]

No. There are no restrictions on withdrawing after-tax contributions; there never were. This is a case where the IRS provided an example, but that did not provide a ruling on any suspension when after-tax funds where withdrawn. Just think, they are now imposing the rule on new after-tax contributions made to the plan after the merger; their version of correcting prospectively

Good Luck!

[masteff]

See question 15 on page 8 here: http://www.americanbar.org/content/dam/aba/migrated/2011_build/employee_benefits/2006_qa_irs.authcheckdam.pdf

For anyone having trouble finding them to read:

Rev Rul 72-275: http://www.charitableplanning.com/document/678257

Rev Rul 74-55: http://www.charitableplanning.com/document/676524

Rev Rul 74-56: http://www.charitableplanning.com/document/674376