IRS Amends Safe Harbor Rollover Notices

December 2014ERISA Alert

Under Section 402(f) of the Internal Revenue Code, administrators of qualified retirement plans are required to provide certain information to participants and beneficiaries who receive distributions that are eligible to be rolled over. In IRS Notice 2014-74, the IRS updated and amended the previously issued safe harbor notices that can be used to fulfill this obligation. The IRS previously provided two safe harbor notices that could be used to satisfy the written explanation required to be delivered to recipients of eligible rollover distributions from a qualified retirement plan: one for Roth accounts and one for non-Roth accounts. The amendments to the safe harbor notices reflect the IRS's revised position regarding the allocation of after-tax amounts where a distribution is to be distributed to more than one destination and consists of both pre-tax and after-tax amounts and the allocation of earnings with respect to distributions from a designated Roth account.i

Under the prior IRS guidance,ii if a portion of the distributions from a designated Roth account is paid to the participant and a portion is rolled over to an eligible retirement plan (e.g., IRAs or another qualified retirement plan), then each of the payments will include an allocable portion of the earnings from the designated Roth account. For non-Roth accounts, if a portion of the distribution is directly rolled over to an eligible retirement plan and a portion paid to the participant, then each of the payments will include an allocable portion of the after-tax contributions.

For distributions after January 1, 2015: In the case of distributions from designated Roth accounts, the earnings are allocated first to the portion of the distribution that is rolled over. In the case of distributions from non-Roth accounts, if the pre-tax amount of the distribution is less than the amount that is rolled over to one or more eligible retirement plans, the entire pre-tax amount is allocated to the portion of the distribution that is directly rolled over. If the pre-tax amount exceeds the amount that is rolled over to one or more eligible retirement plans, the excess amount is includible in the distributee's income. The revised safe harbor notices reflect these procedures for allocating earnings from designated Roth accounts and pre-tax amounts from non-Roth accounts.

What to do now? Administrators of qualified retirement plans should update their rollover notices to reflect the revised IRS position for allocating earnings from Roth accounts and pre-tax and after-tax amounts from non-Roth accounts. Copies of the IRS safe harbor notices can be obtained on the IRS website. The model notices may need to be tailored to address specific plan provisions.


i See IRS Notice 2014-54.
ii See IRS Notice 2009-68.


For more information on this alert or other ERISA matters, please contact:
Fred R. Green at +1 212 592 5910 or [email protected]


Copyright © 2014 Herrick, Feinstein LLP. ERISA Alert is published by Herrick, Feinstein LLP for information purposes only. Nothing contained herein is intended to serve as legal advice or counsel or as an opinion of the firm.