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Jun 2014
09
June 09, 2014

IRS Simplifies Process for Determining the Validity of Rollovers


Employer retirement plans can be designed to allow rollover contributions from other employer plans or IRAs. If the plan allows rollover contributions, the plan administrator must “reasonably conclude” that the contribution is a valid rollover contribution, which generally means it is from an eligible retirement plan, such as qualified employer plan or an IRA.

New IRS guidance gives plan administrators a couple of safe harbors that will simplify these decisions.

From an Employer Plan

Most employer plans (other than governmental and non-electing church plans) are required to file an annual Form 5500 that contains specific information indicating the qualified status of a plan. The IRS says it is reasonable for an administrator to rely on the distributing plan’s Form 5500 to conclude it is a qualified plan. Form 5500 filings are available on the Department of Labor’s website. 

In this circumstance it is also reasonable for an administrator to conclude that a rollover contribution is valid because a check was issued and payable to the trustee for the benefit of the employee, meaning that the administrator of the distributing plan intended to treat the distribution as an eligible rollover distribution. 

From an IRA

A plan administrator may reasonably conclude that a rollover from an IRA to a qualified employer plan is valid if the trustee of the IRA issued a check payable to the trustee of the receiving plan for the benefit of the employee. Similar to employer to employer transfers, issuance of the check in that manner indicates that the trustee of the IRA intended to treat the distribution as a rollover contribution paid directly to the employer plan. Additionally, the employee must certify that the distribution included no after-tax amounts and that he or she will not attain age 70½ by the end of the year of the transfer.

In either scenario, even if there is no check stub, an administrator can reasonably conclude the rollover is valid if the check itself identifies the distributing plan or IRA as the source of the funds. If the rollover was sent by wire transfer or other electronic means, the administrator’s conclusion is still reasonable as long as the same information regarding the source of the funds is communicated to the administrator of the receiving plan.

If an administrator later determines that a rollover is invalid, the amount rolled over plus any attributable earnings must be distributed to the employee within a reasonable time after the determination.

If you have questions about how the new safe harbor procedures for rollover contributions impact your plan, please contact any member of the Warner Norcross & Judd Employee Benefits / Executive Compensation Practice Group.

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