Notice 2014-54

[Jerry Erisa]

Am I correct in assuming that the recent IRS Notice 2014-54, addressing the allocation of distributed funds made to multiple destinations, between pre and after tax amounts, is only applicable to "pooled retirement plans", and not "allocated plans", such as John Hancock, etc?

Thank you very much for your insights!

[mbozek]

Where do you see that distinction in the Notice which applies to rollovers from qualified plans.

[Jerry Erisa]

Thank you Mbozek: for your initial response.

I am simply paraphrasing the "Purpose" paragraph of the Notice 2014-54, which I will note in is entirety below:

This notice provides rules for allocating pretax and after-tax amounts among disbursements that are made to multiple destinations from a qualified plan described in 401(a) of the Internal Revenue Code. These rules also apply to disbursements from a 403(b) plan or a 457(b) plan maintained by a governmental employer described in 457(e)(1)(A) (a "governmental 457(b) plan"). Section VI of this notice provides transition rules."

My question relates to the Investment recordkeeping environment in which the plan finds itself.

It appears this Notice 2014-54 applies only to "pooled" plans, not allocated plans recordkept by a John Hancock (for example) where (in a John Hancock type situation) each participant's account (and sub-accounts) is/are daily, and separately, record kept.

Thoughts?

Thank you very much!

[mbozek]

the notice refers to multiple destinations of distributions of a participants benefit from a qualified plan, 403b or govt 457b plan such as part of a distribution is rolled over to a TIRA, some is a taxable distribution and some is rolled over to a Roth IRA. Don't see any reference to pooled assets. Where do you get the idea that the Notice only applies to pooled plans?

[Jerry Erisa]

Dear Mbozek:

You stated above, "where do you get the idea that the Notice only applies to pooled plans?"

Yes, this is my concern as well.

Obviously, I see the Notice 2014-54 applying to "pooled plans",

... but those around me see Notice 2014-54 as not applying to daily valued, John Hancock type plans. These folks believe that, in a daily valued environment such as a John Hancock plan, each account and sub-account is daily valued, and that there is already a precise, if not daily, allocation of funds between pre-tax, and after tax funds.

Do you agree or disagree, and do you have a line of reasoning you could share with us on this Board?

Thank you very much for your insights!

[QDROphile]

How are distributions from pooled account plans any different from distributions from individual account plans? There is always an allocation of taxable and nontaxable amounts in a distribution. The notice addresses destinations, not sources.

[mbozek]

Jerry:

Whether there is an allocation of pre and after tax amounts by fund does not necessarily determine how distributions are taxed. For example, a DC plan can treat the accumulations attributable to AT contributions as a separate contract under the plan so that distributions from AT account will be taxed based on the ratio of pre tax to after tax amounts in the account regardless of what funds are holding plan assets. You need to contact the plan administrator or the fund provider to find out how the pre and AT amounts are allocated when making distributions.