The Internal Revenue Service (IRS) issued guidance on September 18 that modifies its safe harbor explanations that may be (and typically are) used to satisfy Section 402(f) of the Internal Revenue Code (IRC). IRC Section 402(f) requires plan administrators of 401(a) qualified plans to provide a written explanation of an individual’s rollover rights (of eligible rollover distributions) within a reasonable period of time (i.e., no fewer than 30 days and no more than 180 days) before the date a plan distribution is to be made.
The modifications, described in Notice 2018-74, reflect changes made under the Tax Cut and Jobs Act of 2017 (TCJA) relating to the rollover of qualified plan loan offset amounts and guidance issued in IRS Revenue Procedure 2016-47 (Rev. Proc. 2016-47) on self-certification of eligibility for a waiver of the 60-day deadline for completing a rollover.
The TCJA provided an extended period of time during which a qualified plan loan offset amount may be rolled over. A qualified plan loan offset amount for this purpose is the amount by which a participant’s account is reduced to repay a loan, and treated as distributed from the plan, solely due to the termination of the plan or due to the participant’s failure to repay the loan because of a severance from employment. The extended period under the TCJA ends on the individual’s tax filing due date (including extensions) for the taxable year in which the offset occurs.
Rev. Proc. 2016-47 provided guidance for individuals to self-certify that they are eligible for a waiver from the 60-day deadline to complete a rollover contribution to an eligible retirement plan. Specifically, an individual must certify in writing, by using either a model letter included with Rev. Proc. 2016-47 or a letter that is substantially similar to the model, that (1) the IRS had not previously denied a waiver request with respect to rolling over the distribution, and (2) the reason for missing the 60-day deadline is one of several listed in Rev. Proc. 2016-47, including an error by the financial institution making the distribution or the contribution, and such hardships as illness, a death in the family, and severe damage to the individual’s principal residence. The individual must make the rollover contribution as soon as possible (no more than 30 days) after the reason no longer prevents the individual from completing the rollover. A plan administrator may rely on the self-certification provided it does not have knowledge to the contrary of what the individual is certifying.
Notice 2018-74 contains two appendices: Appendix A contains the revised model safe harbor explanations (one for distributions that are not from a designated Roth account, and another for distributions from a designated Roth account), and Appendix B provides instructions on how to amend the safe harbor explanations (for plan sponsors that do not wish to replace the explanations they currently use).