Pension Administration and Trust Accounting, PATA  Pension Administration and Trust Accounting                                                                                      






                                             
         2 Central St
         Ipswich, MA  01938
         978.356.9004
         (f) 978.418.9178

© October 2011
SITEMAP

New Rollover Rules

Click - >  Here is a handy link … A Rollover Chart

The new tax law greatly expands the rollover opportunities for participants. As a plan sponsor, you should compare the new rules with the rollover provisions of your plan and decide if you want to amend your plan to include the new options.

Under the old law, a profit sharing plan, for instance, could only receive rollovers from another qualified retirement plan or from a “conduit” IRA. A conduit IRA is a holding tank for qualified retirement plan rollovers-—it cannot receive any other type of contributions from its owner. In the past, if a conduit IRA ever received contributions from its owner other than rollovers from qualified plans, it became tainted and the “taint” prevented any future roll back into a qualified plan.

Under the new law, a qualified plan can receive funds from any IRA—-whether or not there has been a commingling of qualified plan rollovers and other IRA contributions. This major breakthrough removes the need for “conduit” IRAs in most cases.

The new law also allows your plan to accept rollovers from Section 403(b) tax sheltered annuities (TSAs) and Section 457 governmental deferred compensation plans (457 plans). Even after-tax contributions in employer plans can be directly rolled into another qualified plan—-if separate accounting is done. Also, according to the new law, a participant in your plan who is a surviving spouse of a deceased participant in another plan can roll over distributions into your plan.

Choosing these new options will probably require a plan amendment. According to IRS Notice 2001-42, a plan sponsor that chooses to implement any of the optional provisions under the new law will have to amend its plan to conform plan provisions to plan operation. To assist you, the IRS has issued model language to cover the additional types of plans from which rollovers may be accepted. You will also need to inform your employees of the changes to the plan.

Should your plan take advantage of these optional provisions? We see no good reason not to (other than for after-tax amounts, which require additional recordkeeping). For large and small plans alike, it provides an additional employee benefit, helps you with recruitment, and, for smaller plans the increase in plan assets may make the plan eligible for expanded services and investments.

A word of caution. First, you will want to make sure the money coming into your plan is a valid rollover. Under current law, you must “reasonably conclude” that the contribution is a valid rollover contribution. The plan sponsor is generally protected by relying on a determination letter or a representation from the plan administrator of the distributing plan (see Treasury Regulation 1.401(a)(31) Q&A-14). We anticipate similar criteria will be applied under the expanded rollover provisions.

Lastly, a note about funds leaving your plan. While you are not required to accept rollovers into your plan, you are required to provide participants leaving your plan with a more comprehensive notice of their expanded rollover options to other retirement vehicles. The IRS has issued model language for your plan relating to direct rollovers and will issue a revised model notice that will aid you in fulfilling this requirement.

The provisions discussed in this article are effective for distributions made after December 31, 2001