Thursday, April 10, 2014

Rollover Safe Harbors

Regulations provide that where a plan accepts a rollover contribution it will be treated for purposes of the qualification rules as a valid rollover contribution as long as the following two conditions are satisfied.  First, the plan administrator reasonably concludes that the contribution is a valid rollover contribution. Second, if the plan administrator of the receiving plan later determines that the contribution was an invalid rollover contribution, the amount of invalid contribution plus earnings must be distributed to the employee. Treas. Reg. § 1.401(a)(31)-1, Q & A 14(a).
For purposes of the first condition that the plan administrator must reasonably conclude that the contribution is a valid rollover contribution, the regulations note that while evidence of a favorable IRS determination letter is useful in concluding that the contribution is a valid rollover contribution, a determination letter is not necessary to conclude that the contribution is a valid rollover contribution.  Treas. Reg. § 1.401(a)(31)-1, Q & A 14(a).
The regulations give various examples where the plan administrator of the receiving plan may conclude that the contribution as a valid rollover contribution.  For example, a letter from plan administrator of distributing plan that it has a favorable IRS determination letter can be relied upon to conclude there is a valid rollover contribution.  Treas. Reg. § 1.401(a)(31)-1, Q & A 14(c), Ex. 1.  Alternatively, a letter from the plan administrator of the distributing plan representing that the plan is qualified and that the plan administrator is not aware of anything that would result in disqualification could also be relied upon.  Treas. Reg. § 1.401(a)(31)-1, Q & A 14(c), Ex. 2.  
According to a 2014 revenue ruling, a plan administrator of the receiving plan may rely on the fact that Line 8a of Form 5500 for distributing plan, available on www.efast.dol.gov, (or Line 9 of Form 5500-SF) does not include Code 3c for a nonqualified plan for reliance that the contribution is a valid rollover contribution.  Rev. Rul. 2014-9, Situation 1.

Similarly with regard to a rollover from a traditional IRA a check from the trustee payable to the receiving plan that indicates on the pay stub that it is an IRA of the employee (and the employee certifies that there are no after-tax amounts and the employee is not age 70-1/2), the plan administrator may conclude that the contribution from the IRA is a valid rollover contribution.  Rev. Rul. 2014-9, Situation 2.

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