Plan Action Required: IRS Issues Updated Safe Harbor Rollover Notices

The Internal Revenue Service recently issued (in IRS Notice 2009-68) two updated model rollover notices for use by plan administrators. The new notices update the previously issued "safe harbor" notices to reflect changes in the law and are written in a more reader-friendly manner to make it easier for recipients to understand. In light of the different tax treatment of Roth account distributions from 401(k) and 403(b) plans, the IRS issued two model "safe harbor" notices; one which applies to a designated Roth account distribution and one which applies to a distribution not from a designated Roth account. Plans using the new safe harbor notices to notify plan distribution recipients of their rollover rights, as required by Internal Revenue Code (the "Code") Section 402(f), should begin doing so no later than January 1, 2010. However, because the notices previously issued by the IRS do not reflect certain changes in law, it is suggested that the new notice(s) be used as soon as practicable.

402(f) Notice Requirement Plan administrators for each of the following types of pension plans are required to provide participants with a written explanation of their eligible rollover distribution rights, referred to as a "402(f) notice," before making a distribution eligible for rollover: Code Section 401(a) qualified plans (including defined benefit plans making distributions in non-annuity forms, cash balance plans, Code Section 401(k) plans, profit sharing plans, money purchase plans, stock bonus plans and employee stock ownership plans), Code Sections 403(a) and 403(b) plans, and governmental Code Section 457(b) plans. An eligible rollover distribution is a plan distribution that may be rolled over to an "eligible retirement plan." However, only certain distributions, such as lump sum distributions and installments over a period shorter than the lesser of 10 years or life expectancy, may qualify as eligible rollover distributions. Other distributions, such as hardship distributions, life annuity distributions, installment distributions paid over 10 or more years and minimum required distributions pursuant to Code Section 401(a)(9), do not qualify as eligible rollover distributions. Eligible retirement plans, to which an eligible rollover distribution can be rolled over, include qualified plans (including defined benefit and 401(k) plans), 403(b) plans, IRAs and, where applicable, Roth IRAs. The 402(f) notice must be provided no later than 30 days...