On August 24th, the IRS released guidance that permits an automatic waiver of the sixty-day rollover period for retirement plan distributions by allowing individuals to self-certify that they qualify for the waiver under any of 11 common circumstances. The guidance also contains a model waiver template. Retirement plan administrators and IRA trustees can rely on an individual’s certification unless the plan administrator/IRA trustee has actual knowledge that is contrary to the self-certification.
The automatic waiver of Revenue Procedure 2016-47 applies if the individual missed the statutory 60-day deadline because of the inability to complete the rollover due to one or more of the following reasons:
(1) an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
(2) the distribution, having been made in the form of a check, was misplaced and never cashed;
(3) the distribution was deposited into and remained in an account that the individual mistakenly thought was an eligible retirement plan;
(4) the individual’s principal residence was severely damaged;
(5) a member of the individual’s family died;
(6) the individual or a member of the individual’s family was seriously ill;
(8) restrictions were imposed by a foreign country;
(9) a postal error occurred;
(10) the distribution was made on account of a levy under Internal Revenue Code (“Code”) § 6331 and the proceeds of the levy have been returned to the individual; or
(11) the party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the individual’s reasonable efforts to obtain the information.
In order to be eligible for the self-certification, the rollover contribution must be made to the plan or IRA as soon as practicable after the reason(s) listed above no longer prevent the individual from making the rollover contribution. This requirement is deemed to be satisfied if the rollover contribution is made within 30 days after the reason(s) no longer prevents the individual from making the contribution. In addition, the IRS must not have previously denied the individual’s request for a rollover of all or part of the distribution.
Prior to Revenue Procedure 2016-47, individuals who missed the sixty-day rollover window had to apply for a private letter ruling to obtain a waiver, a more lengthy and costly process requiring that the individual 1) file a detailed private letter ruling request with the IRS, 2) pay a fee of $10,000 (as of 2016), and 3) wait to receive the ruling from the IRS before making the late rollover contribution. The streamlined self-certification process announced in Revenue Procedure 2016-47 will allow for an expedited remedy.
Plan Administrator Due Diligence
The 2016 IRS guidance supplements earlier guidance issued in 2014 to assist plan administrators of plans receiving a rollover distribution to determine that the distribution came from a qualified plan, § 403(a) plan, § 403(b) plan, eligible governmental § 457(b) plan, or IRA, and is thus a valid rollover contribution. That ruling (Revenue Ruling 2014-9) offers alternative methods for the plan administrator to follow.
The plan administrator of the receiving plan can access the Department of Labor’s EFAST2 database to check the distributing plan’s most recently filed Form 5500 for the inclusion of the code 3C indicating whether the plan is not intended to be qualified under Code §§ 401, 403, or 408. If code 3C is not present, the plan administrator can reasonably deduce that the distributing plan is intended to be qualified and thus accept the contribution as a valid rollover contribution.
Another method is to review the source of funds and named payee of the check. If the check is made payable to the trustee of an eligible retirement plan for the benefit of a participant from the trustee of another eligible retirement plan, it is reasonable for the receiving plan to conclude that the plan that initiated the rollover determined that the distribution was an eligible rollover. The receiving plan’s administrator may rely on this determination absent any evidence to the contrary, and may reasonably conclude that the potential rollover contribution is a valid rollover contribution. In the context of IRA-to-plan rollovers, if a check is made payable to the trustee of an eligible retirement plan from the trustee of an IRA for the benefit of an individual and the individual certifies that the distribution does not include after-tax amounts and that the individual will not have attained age 70½ by the end of the year in which the check is issued, it is reasonable to conclude that it is an eligible rollover as the source of funds is a traditional IRA and not an inherited IRA.
If it is later determined that the amount rolled over was an invalid rollover, the amount rolled over plus attributable earnings must be distributed back to the individual within a reasonable time after such determination.