IRS Issues Updated ‘Safe Harbor’ 402(f) Model Notices for Retirement Plan Administrators
The Internal Revenue Service (IRS) and U.S. Department of the Treasury recently updated 2018 “safe harbor” guidance on eligible rollover distribution explanations to plan participants. The explanations, known as “402(f) notices,” must be provided to any recipient of an eligible rollover distribution from an eligible retirement plan (e.g., a plan governed by Code Section 401(a), 403(a), 403(b), 457(b), an IRA) and issued no later than 30 and no earlier than 180 days prior to payment. The 402(f) notice provides important information about “rolling over” an eligible rollover distribution (i.e., generally, any lump sum payment or series of installment payments over a period of less than 10 years) to another eligible retirement plan, or individual retirement account (IRA).
The new guidance in IRS Notice 2020-62:
- Clarifies which newly available distributions are exempt from the 402(f) notice requirement; and
- Provides two new 402(f) safe harbor notice templates that automatically meet the strict 402(f) notice content requirements.
The new guidance can be found here.
In late 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), allowing individuals to receive a “qualified birth or adoption distribution” of up to $5,000 from an eligible retirement plan. While such distributions may be recontributed to the plan from which they are paid, Notice 2020-62 clarifies that they are not eligible rollover distributions and not subject to the 402(f) notice requirements. The SECURE Act also raised, from age 70 1/2 to age 72, the age by which a qualified plan participant must begin receiving required minimum distributions (RMDs). The recent guidance clarifies that 402(f) notices must continue to be issued for eligible rollover distributions until a participant’s RMDs begin.
This year, in response to the COVID-19 crisis, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), allowing, among other things, plan participants to receive a special “coronavirus-related distribution” from an eligible retirement plan in 2020. A coronavirus-related distribution is not, however, an eligible rollover distribution under the CARES Act, and therefore not subject to the 402(f) notice requirement as clarified in Notice 2020-62.
Notice 2020-62 also provides two updated safe harbor 402(f) model notices for use by plan administrators. One is for a distribution from a non-Roth retirement plan account and the other for a distribution from a Roth retirement plan account. The updates modify model 402(f) explanations issued as part of Notice 2018-74, and include changes relating to the SECURE Act provisions noted above, as well as additional modifications for clarity.
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Theodore P. Stein
410-576-4229 • email@example.com
August 13, 2020