Revenue Ruling 2014-09

[Guest Mark03]

I've been reviewing Revenue Ruling 2014-09, and it appears to apply only to rollover contributions going into 401(a) plans. Does this extend to rollover distributions into nongovernmental 403(b) plans?

This seems like it should be a simple answer, but I haven't yet seen any guidance that explicitly included 403(b) plans.

Thanks!

[masteff]

Does this extend to rollover distributions into nongovernmental 403(b) plans?

Yes. Among other bits of the Rev Rule, paragraphs 1 and 2 on page 3 support that.

Here is a link to the Rev Rul if anyone else wants to see it.

http://www.irs.gov/pub/irs-drop/rr-14-09.pdf

In my opinion, none of it is novel, but they do address in the paragraph that laps from page 4 to 5 that a number of changes have been made to the Code that have not been updated in the Regs.

[Peter Gulia]

The Treasury department produced a nice bit of guidance. The idea of looking to a Form 5500 report to presume that a plan is intended to be tax-qualified is smart.

What do BenefitsLink mavens think about these remaining questions:

Is the Revenue Ruling's method inapplicable if the distribution to be rolled over was paid from a governmental plan or non-ERISA church plan that has not filed a Form 5500 report?

If the would-be receiving plan's administrator asks the paying plan's administrator for a written statement that the paying plan is intended to be tax-qualified or eligible, and the paying plan's administrator refuses to sign anything at all, what should the participant do next?

[Guest Mark03]

Does this extend to rollover distributions into nongovernmental 403(b) plans?

Yes. Among other bits of the Rev Rule, paragraphs 1 and 2 on page 3 support that.

Here is a link to the Rev Rul if anyone else wants to see it.

http://www.irs.gov/pub/irs-drop/rr-14-09.pdf

In my opinion, none of it is novel, but they do address in the paragraph that laps from page 4 to 5 that a number of changes have been made to the Code that have not been updated in the Regs.

Thank you for the response. However, that is the root of my question: paragraphs 1 and 2 on page 3 are referring to the "eligible rollover distributions" to be rolled into the retirement plan. The only type of "receiving plan" listed is a 401(a) plan.

This is novel to me in that historically, the only safe harbour for verifying a rollover into a 403(b) is not tainted is to obtain a copy of the determination letter of the plan that contained the source of the eligible rollover distribution. Treasury Regulation 1.401(a)(31) Q&A-14 implied that the determination letter is useful but not necessary, but to my knowledge there has never been any additional guidance to clarify what is acceptable.

[QDROphile]

Nothing is novel because the new guidance is just a minor extension of the Treasury Regulation; it provides examples, not a new standard. The principle is that the plan adminstrator has to have a reasonable belief the amount is an eligible rollover distribution and that does not involve an investigation appropriate for a reasonable determination that the amount is an elgible rollover distribution (e.g. determination letter). Intent that the sending plan is qualified is enough. The standard is low because of policy favoring transportability.

[masteff]

The notice does address a 403(b) as a receiving plan, it's just a bit convoluted. The paragraphs in question first define an "eligible retirement plan" and then address rollovers to such a plan.

From Para 1, Page 3: "Section 402©(8) provides that an eligible retirement plan is ... an annuity contract described in § 403(b)."

From Para 2, Page 3: "Sections ... 403(b)(8)(A) ... provide that if any portion of an eligible rollover distribution from a ... § 403(b) plan ... is transferred to an eligible retirement plan, the portion of the distribution so transferred is not includible in gross income in the taxable year in which transferred."

A similar analysis is in the background section of Notice 99-5.

You might read thru the preamble to the amended proposed reg issued in 1998 http://www.gpo.gov/fdsys/pkg/FR-1998-12-17/pdf/98-32931.pdf which says in part: "Accordingly, the proposed regulations have been amended to provide explicitly that it is not necessary for the distributing plan to have a favorable IRS determination letter in order for the plan administrator of the receiving plan to reach a reasonable conclusion that a contribution is a valid rollover contribution."

I will concede that I'm pretty liberal in applying the rules to receiving rollovers. But the reg has a "no foul" remedy which is simply disgorging the money if you later learn the rollover was invalid.

[Guest Mark03]

Thanks all for the discussion. We've historically used a very experienced, but very conservative benefits law firm so guidance we've operated on from them has generally been more conservative than most, but I wanted to get an opinion from elsewhere as well, and I haven't yet seen this clarification from a whitepaper or another forum.

Thanks again.

[Peter Gulia]

What do BenefitsLink mavens think about my remaining question:

If the paying plan never filed a Form 5500 report, the would-be receiving plan's administrator asks the paying plan's administrator for a written statement that the paying plan is intended to be tax-qualified or eligible, and the paying plan's administrator refuses to sign anything at all, what should the participant do next?

[QDROphile]

Direct the distribution to an IRA. The distribution will not have been made because the participant will check with the receiving plan before the distribution and will learn of the receiving plan's refusal to accept the prospective rollover. The participant will provide distribution instructions appropriate for a direct rollover to an IRA that the participant established for the rollover.

[masteff]

What do BenefitsLink mavens think about my remaining question:

If the paying plan never filed a Form 5500 report, the would-be receiving plan's administrator asks the paying plan's administrator for a written statement that the paying plan is intended to be tax-qualified or eligible, and the paying plan's administrator refuses to sign anything at all, what should the participant do next?

I'm going w/ what QDROphile said. In some cases, if the distributing plan refuses to sign something, then you have little else to go on. What type of plan is the rollover coming from? Individually designed 403(b) plans won't have determination letters any time soon.

Keep in mind that under the changes brought about by EGTRRA, the participant can rollover to an IRA and from there, rollover to your plan. The old "conduit IRA" days are gone so you don't have to trace the money's history. Admitted, you still have a bother if the rollover eventually turns out to be invalid (because the original source was disqualified), but the participant would have that problem no matter where they move the money and you're protected by the Reg (Q&A-14 says to simply disgorge the money if you later learn it was an invalid rollover).

[Peter Gulia]

Thanks for the help.

One more: If a distributing plan's administrator does not furnish a determination letter and refuses to sign anything at all, how does an IRA custodian satisfy itself that the rollover comes from an eligible retirement plan?

[QDROphile]

Does the IRA custodian have any duty? The IRA custodian does not have the same concerns as a qualified plan administrator.

[FormsRstillmylife]

If the Plan Administrator is obstructing the eligible rollover distribution, he is not operating the plan in accordance with the plan document. As a participant, I think I would call the DOL and sic them on him.

[masteff]

If the Plan Administrator is obstructing the eligible rollover distribution, he is not operating the plan in accordance with the plan document. As a participant, I think I would call the DOL and sic them on him.

But what's being obstructed, the 401(a)(31) mandated distribution or the receiving plan's acceptance of it?

Your suggestion works w/ an ERISA plan that has a determination letter that likely falls under ERISA disclosure rules. Won't be so effective for disbursing plans that are non-ERISA or don't have DLs or 5500s to disclose. You'll have trouble forcing me to sign a non-plan document.