Can we simplify rollovers between retirement plans?

[Peter Gulia]

Can we simplify rollovers between retirement plans?

Here’s yesterday’s prepublication release of IRS Guidance on Section 324 of the SECURE 2.0 Act with Respect to Rollovers, Notice 2026-49, 2026- -- I.R.B. --- (---, 2026), https://www.irs.gov/pub/irs-drop/n-26-49.pdf

The Notice suggests a step-by-step way for a receiving plan to get information and money from a distributing plan.

The Notice includes sample forms.

Will this work?

[Bri]

My guess is they'll either work great (common RK platform DC plans), or they'll be horrible (trustee-directed pooled assets with spousal consent).

[Peter Gulia]

Bri, thank you.

I get the difficulty about a distributing plan that still has a spouse’s-consent condition.

So I learn something: About trustee-directed pooled assets, is the difficulty that such a plan often lacks daily valuation and might impose monthly, quarter-yearly, or yearly intervals and valuation dates to measure a distribution? Or is it something else?

BenefitsLink neighbors, what other hang-ups happen in dealing with rollovers?

[Paul I]

The proposed process has 5 steps and involves 4 "forms" (read exchanges of information between the distributing plan and the receiving plan).  The process also encourages an electronic transfer of funds and disallows sending a rollover check directly to the participant to forward to the receiving plan.  I agree with @Bri that the process likely will flow relatively smoothly for common plan designs on larger recordkeeping platforms.

The first step of the process is for the participant to notify the receiving plan on the intent to make a rollover.  This first step is an exchange of information between the participant who often has incomplete knowledge of about the provisions in their plan, and the receiving plan who has no knowledge about the distributing plan's provisions.  Let's just say incorrect assumptions likely will be made about the features and administrative procedures of the distributing plan.

@Bri's observation about the valuation frequency certainly is an issue.

Here are some examples of a few more potential issues:

• The distributing plan has a graded vesting schedule and uses an hours rule for crediting vesting service.  Hours worked in the vesting computation period will need to be collected from the plan sponsor.
• The distributing plan has a match or nonelective employer contribution without a last day allocation requirement (or waives it for retirement, death or disability) and the participant is eligible for an NEC which will not be made until after year end.
• The distributing plan has employer stock which is not publicly traded  or other assets which valued less frequently than daily, and the valuation of these assets is not available daily.
• The individual who notifies the receiving plan about a rollover may assume they are a beneficiary or alternate payee entitled to a benefit when, in fact, they are not based on the terms of beneficiary elections or a QDRO.
• The participant who notifies the receiving plan has an outstanding loan and has not provided information to the distributing plan about whether the participant intends to payoff the loan prior to the distribution being paid (so it can be included in the rollover), or intends to let the loan default.
• The distributing plan may allow for in-kind distributions which will require much more coordination with the receiving plan than is contemplated in the proposed process.
• The participant is an HCE who tends routinely tends to receive refunds because the plan fails nondiscrimination testing.

I expect our BenefitsLink neighbors easily can add many more examples a lack of familiarity with the operation of the distributing plan (both by the participant and the receiving plan) can cause chaos.

[Peter Gulia]

The steps and forms the IRS suggests involve a “certification” some plans’ administrators might be reluctant or unwilling to state.

Form 2: Receiving Plan’s Request to Distributing Plan would state:

“To the best of my knowledge, . . . the Receiving Plan is tax-qualified[.]”

Form 3:  Distributing Plan’s Rollover Certification would state:

“To the best of my knowledge, . . . the Distributing Plan is tax-qualified[.]”

I recall when many people were unwilling to sign such a statement; is that still a problem?