The IRS has updated its “safe harbor explanations” for eligible rollover distributions to reflect recent statutory changes and IRS guidance. Employers should review this latest guidance and update their explanations accordingly.

Background

When employees with assets in a qualified retirement plan leave their job, the IRS requires the plan sponsor to provide the employee with a plain-language explanation of their rollover options. The IRS has published model notices for this purpose. Employers may also provide a custom notice to employees.

2018 Update

The IRS last updated its model notices in 2014. Changes in the Tax Cuts and Jobs Act (“TCJA”) as well as other minor changes since 2014 have now been incorporated into the latest model notice.

Any employer (whether they use the model or a customized rollover notice) that has not already updated its rollover guidance to reflect these changes should review the updates in Notice 2018-74 carefully. In particular, employers may want to review Appendix B, which contains the line-by-line modifications to the 2014 model notice.

These changes include:

Extended Rollover Deadline for Qualified Plan Loan Offset Amounts

The TCJA extended the deadline (previously 60 days) for rollovers of plan loan offsets that result from either termination from employment or plan termination. Now, the deadline for the offset is any time between the date of the distribution and the extended due date of the employee’s personal federal income tax return.

New Self-Certification Procedures to Claim Eligibility for Waiver of the 60-day Deadline for Rollovers

In 2016, the IRS began a new process of allowing individuals to “self-certify” a hardship exception to the 60-day rollover deadline, instead of requesting a private letter ruling.

Extended Deadlines for Rollovers for Federally-Declared Disasters

The new model notice explicitly mentions that taxpayers that are affected by federally declared disasters and other events may have an extended deadline for making rollovers. For example, those impacted by Hurricane Florence have until January 31, 2019, to complete a rollover.

Additional Clarifications

The new model notice clarifies that the additional 10% tax under Code §72(t) applies only to amounts included in income, and makes a number of clarifications that apply to governmental plans.