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IRS Updates Safe Harbor Rollover Notices for Qualified Plan Loan Offsets and Other Recent Changes



IRS Notice 2018-74 (Sept. 18, 2018)

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The IRS has updated its safe harbor explanations for eligible rollover distributions (ERDs) to reflect recent statutory changes and IRS guidance. As background, Code § 402(f) requires that ERD recipients receive a written explanation of their rollover options and the tax consequences of their distributions. The IRS has provided two safe harbor rollover explanations to satisfy that requirement: one for ERDs from a Roth account and another for all other ERDs. These explanations were most recently updated in Notice 2014-74 (see our Checkpoint article). Since then, the Code has been amended to provide an extended rollover deadline for “qualified plan loan offset amounts,” i.e., plan loan offset amounts that are distributed solely because of the plan’s termination or the participant’s severance from employment (see our Checkpoint article). In addition, new statutory exceptions to the 10% additional tax under Code § 72(t) have been added for phased retirements by certain federal employees and early distributions by governmental retirement plans to qualified public safety employees. The IRS has also issued guidance regarding self-certification for taxpayers claiming a waiver of the usual rollover deadline for 60-day rollover distributions (see our Checkpoint article).

Notice 2018-74 revises the safe harbor rollover explanations to incorporate these changes. The new versions also include language regarding the special rollover rights that may apply to individuals affected by a federally declared disaster (or similar event), and various clarifying changes. Appendix A to the notice restates both safe harbor explanations in their entirety. Appendix B provides instructions for updating existing explanations if plan administrators do not want to simply replace those explanations with the new versions. The notice includes a reminder that the new safe harbor explanations will need to be updated in the event of future changes in the relevant law. Plan administrators that wish to use a different explanation may do so, provided that the required information is included and is provided in a manner designed to be easily understood.

EBIA Comment: Plan sponsors and administrators should already have incorporated the necessary changes into their explanations. (Like the current notice, Notice 2014-74 warned that its safe harbor explanations would not satisfy Code § 402(f) if the explanations became inaccurate because of subsequent law changes.) The new safe harbor explanations, however, provide some reassurance as to what constitutes sufficient disclosure regarding recent changes, as well as some helpful clarifications. For plan administrators using customized explanations—for example, because some of the information in the safe harbor notices does not apply or to include additional information—Appendix B will be particularly helpful as a roadmap for making updates. For more information, see EBIA’s 401(k) Plans manual at Sections XIV.D (“Sixty-Day Rollover Distributions”), XIV.G (“Required Explanation of Rollover Rules (the Rollover Notice)”), XIV.J.1.e (“General Income Tax and Withholding Rules on Plan Distributions: Exception for Qualified Disaster-Related Distributions”), and XVI.F (“Consequences of Nonpayment: Default and Taxable Distributions”).

Contributing Editors: EBIA Staff.

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