Retirement plan administrators routinely receive requests from employees to accept rollover contributions of amounts held in a prior employer’s qualified plan or, in some cases, an IRA. When processing these requests, plan administrators must be mindful of IRS guidelines that require them to be reasonably certain that the distribution is being made from another qualified plan or plan permitted to make a rollover distribution before accepting the rollover and contributing it to the plan’s trust. Failure to follow IRS guidelines in accepting rollover contributions could compromise the tax qualified status of the plan and trust, so the plan should have and follow written procedures when processing rollover requests.  Recent IRS guidance provides a good refresher on the guidelines that retirement plan administrators should follow when a request is received to roll money into the plan and also provides some updates to current guidance on accepting rollover contributions should make it easier for plan administrators to process rollover funds received.

Before jumping into what’s new in Rev. Rul. 2014-9, it’s important to have a basic idea of what’s required of a plan administrator upon receiving a request to roll money into a retirement plan. When accepting an amount from an employee as a rollover contribution, the plan administrator for the receiving plan must (1) reasonably conclude that the contribution is a valid rollover contribution; and (2) if it later determines that the contribution was not valid, distribute the amount of the invalid contribution, plus earnings, to the employee within a reasonable period of time after such determination.

With respect to the first requirement imposed on the plan administrator of the receiving plan, the key steps are to:

1. determine if the plan is permitted to accept rollover contributions from the type of plan that made the distribution. A qualified plan may only accept rollover contributions from certain types of plans, including other qualified plans, 403(b) plans, eligible 457(b) governmental plans, 403(a) annuity plans, individual retirement accounts, individual retirement annuities and most IRAs.
2. ensure that the rollover distribution does not include amounts that are not distributable. This would include amounts that must be distributed and taxed (and thus, not rolled over) because of the required minimum distribution rules that take effect, generally, in the calendar year following the year in which the participant reaches age 70½, payments that are made from a plan in the form of periodic payments over the participant’s lifetime or for at least 10 years (such as monthly annuity payments under a single, joint or fixed-term schedule), and hardship distributions.

In terms of proof needed to determine whether a rollover request may be granted, new guidance under Rev. Rul. 2014-9 allows plan administrators to look at the most recent Form 5500 of the plan from which the money was distributed. The Form 5500 will indicate the type of plan and, for 401(a) qualified plans, 403 and 408 plans, will indicate on Line 8a (or Line 9a if a Form 5500SF is filed) whether the plan is intended to be qualified under the relevant Code section. All Form 5500s are now required to be filed electronically on the Department of Labor’s EFAST2 system and are available for public access electronically through the DOL’s website.

Checking a plan’s Form 5500 is an alternate way of satisfying the requirement to ensure that the rollover is being made by an eligible plan, which the IRS had previously suggested be done by receipt of a letter from the plan administrator of the distributing plan attesting to the plan’s qualified status or coverage under an IRS determination letter. In the case of an indirect rollover (a distribution made directly to a participant that the participant then forwards to the new plan), previous IRS guidance also suggested that a copy of the participant’s distribution statement showing that the distributing plan withheld the required 20% upon distribution should be requested.

Under Rev. Rul. 2014-9, in the case of a direct rollover distribution from one qualified plan to another, the combination of receipt of a check payable to the trustee of the receiving plan for the benefit of the employee together with the plan administrator’s confirmation that the distributing plan has indicated on its most recent Form 5500 that it is intended to be qualified is enough for the plan administrator of the receiving plan to reasonably conclude that the rollover may be accepted.

In the case of an indirect rollover, Rev. Rul. 2014-9 indicates that the employee’s certification that the distributed amount does not contain any amounts not otherwise eligible for rollover under the terms of the receiving plan (such as after-tax or Roth contributions, if those are not accepted), that the employee is not required to receive a minimum distribution for that year and that the money was not distributed as a hardship distribution, along with the plan administrator’s review of the distributing plan’s Form 5500, would be enough to reasonably conclude that the rollover is permissible.

In the case of a rollover from an IRA, the plan administrator would also want to confirm that the distribution was payable to the employee directly (and, thus, not an inherited IRA). In the case of a requested rollover from an IRA, the plan administrator should also check to see if the IRA is traditional or Roth and will not need to verify that amounts were not received as a hardship distribution.

As with many areas of employee benefits, having good procedures in place that are applied consistently is an important part of meeting the legal requirements applicable to a retirement plan and maintaining the plan’s tax qualified status.