[Federal Register Volume 63, Number 242 (Thursday, December 17, 1998)]
[Proposed Rules]
[Pages 69584-69585]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32931]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-245562-96]
RIN 1545-AU46
Relief From Disqualification for Plans Accepting Rollovers
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Proposed regulations; amendment.
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SUMMARY: This document contains an amendment to the proposed
regulations that implements section 1509 of the Taxpayer Relief Act of
1997 (TRA '97). The proposed regulations provide guidance on the
qualification of retirement plans which accept rollover contributions
from employees. This amendment to the proposed regulations clarifies
that it is not necessary for the distributing plan to have a favorable
IRS determination letter in order for the receiving plan administrator
to reach a reasonable conclusion that a contribution is a valid
rollover contribution. This amendment applies to any qualified
retirement plan receiving or distributing eligible rollover
distributions.
DATES: Written comments must be received by March 17, 1999.
ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-245562-96), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered Monday through Friday between the hours of 8 a.m. and 5 p.m.
to CC:DOM:CORP:R (REG-245562-96), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue NW., Washington, DC. Alternatively,
taxpayers may submit comments electronically via the Internet by
selecting the ``Tax Regs'' option on the IRS Home Page, or by
submitting comments directly to the IRS Internet site at http://
www.irs.ustreas.gov/prod/tax__regs/comments.html.
FOR FURTHER INFORMATION CONTACT: Marjorie Hoffman, (202) 622-6030 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On September 22, 1995, Final Income Tax Regulations (TD 8619) under
sections 401(a)(31) and 402(c) were published in the Federal Register
(60 FR 49199). The final regulations provide guidance for complying
with the Unemployment Compensation Amendments of 1992 (UCA). A proposed
amendment to the regulations under section 401(a)(31) was published in
the Federal Register on September 19, 1996 (REG-245562-96) (61 FR
49279).
UCA expanded the types of distributions from a qualified plan that
are eligible to be rolled over to an individual retirement account or
individual retirement annuity, or to another qualified plan that
accepts rollovers (collectively referred to as eligible retirement
plans). Such distributions are referred to as eligible rollover
distributions. UCA also added a new qualification provision under
section 401(a)(31) that requires qualified plans to provide employees
with a direct rollover option. Under a direct rollover option, an
employee may elect to have an eligible rollover distribution paid
directly to an eligible retirement plan. The direct rollover option is
provided in addition to the pre-existing rollover provisions under
section 402. Thus, an employee who receives an eligible rollover
distribution but who does not elect a direct rollover still has the
option to roll over the distribution to an eligible retirement plan
within 60 days of receipt.
The final regulations under section 401(a)(31) provide that a plan
that accepts a direct rollover from another plan will not fail to
satisfy section 401(a) or 403(a) merely because the plan making the
distribution is, in fact, not qualified under section 401(a) or 403(a)
at the time of the distribution if, prior to accepting the rollover,
the receiving plan reasonably concluded that the distributing plan was
qualified under section 401(a) or 403(a). The regulations provide, by
way of example, that the receiving plan may reasonably conclude that
the distributing plan was qualified under section 401(a) or 403(a)
where, before the receiving plan accepted the rollover, the plan
administrator of the distributing plan provided the receiving plan with
a statement that the distributing plan had received an IRS
determination letter indicating that the plan was qualified.
The relief provided in the 1996 proposed regulations under section
401(a)(31) would expand and clarify the guidance previously issued in
the Final Income Tax Regulations under sections 401(a)(31) and 402(c).
First, the proposed regulations would clarify and expand the relief
from disqualification currently provided for plans that accept direct
rollovers. The protection would be expanded to be available not only if
the plan administrator reasonably concludes the distributing plan is
qualified under section 401(a) or 403(a) (even if later it is
determined that the distributing plan is not a qualified plan), but
also if the plan administrator reasonably concludes that a distribution
meets the other requirements to be an eligible rollover distribution
(but later it is determined that this conclusion was incorrect).
Second, the regulations would extend this expanded relief from
disqualification to plans that accept rollover contributions other than
direct rollover contributions.
The 1996 proposed regulations do not mandate any particular
documentation or procedures that a plan administrator must use in order
to reach a reasonable conclusion that a rollover is valid. The 1996
proposed regulations contain a series of examples to illustrate the
types of documentation and procedures that would be sufficient to
support this conclusion. In each example, the employee making the
rollover contribution provides the plan administrator with a letter
from the plan administrator of the distributing plan stating that the
distributing plan has received an IRS determination letter indicating
that the distributing plan is qualified under section 401(a). In
response to concerns that the examples might be read to imply that only
a distribution from a plan with a favorable IRS determination letter
could support a reasonable conclusion that a rollover was valid,
section 1509 of TRA '97 directs the IRS to issue guidance clarifying
that it is not necessary for the distributing plan to have a favorable
IRS determination letter in order for the plan administrator of the
receiving plan to reasonably conclude that a contribution is a valid
rollover contribution.
Explanation of Provisions
This amendment to the 1996 proposed regulations is being issued in
response to the congressional directive in section 1509 of TRA '97 to
clarify that it is not necessary for a distributing plan to have a
favorable IRS determination letter in order for the receiving plan
administrator to reasonably conclude that a contribution is a valid
rollover
[[Page 69585]]
contribution. Accordingly, the proposed regulations have been amended
to provide explicitly that it is not necessary for the distributing
plan to have a favorable IRS determination letter in order for the plan
administrator of the receiving plan to reach a reasonable conclusion
that a contribution is a valid rollover contribution. In addition, an
example has been added in which an employee does not provide a
statement from the plan administrator of the distributing plan that the
distributing plan has received a favorable IRS determination letter,
but provides a statement from the distributing plan administrator
relating to the qualification of the distributing plan. Of course, this
example and the other examples in the 1996 proposed regulations are not
intended to describe the only types of information that a plan
administrator can find to be sufficient and, thus, the examples are not
intended to preclude reliance on other types of information, such as
opinions or statements regarding the plan's qualification provided by
appropriate professionals expert in plan qualification requirements.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866. Therefore,
a regulatory assessment is not required. It also has been determined
that section 553(b) of the Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regulations, and because the
regulation does not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) or comments transmitted via Internet that are
submitted timely to the IRS. All comments will be available for public
inspection and copying.
A public hearing may be scheduled if requested in writing by a
person that timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place for the hearing will be
published in the Federal Register.
Drafting information. The principal author of these regulations is
Pamela R. Kinard, Office of the Associate Chief Counsel (Employee
Benefits and Exempt Organizations), IRS. However, other personnel from
the IRS and Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.401(a)(31)-1 as proposed on September 19, 1996,
at 61 FR 49279, is amended as follows:
1. Under Q&A-14, paragraph (a) is amended by adding a sentence
immediately after the second sentence.
2. Under Q&A-14, paragraph (c) is amended by redesignating Example
2 and Example 3 as Example 3 and Example 4 respectively, and adding a
new Example 2.
The additions read as follows:
Sec. 1.401(a)(31)-1 Requirement to offer direct rollover of eligible
rollover distributions; questions and answers.
* * * * *
A-14: (a) Acceptance of Invalid Rollover Contribution. * * * While
evidence that the distributing plan is the subject of a determination
letter from the Commissioner indicating that the distributing plan is
qualified would be useful to the receiving plan administrator in
reasonably concluding that the contribution is a valid rollover
contribution, it is not necessary for the distributing plan to have
such a determination letter in order for the receiving plan
administrator to reach that conclusion. * * *
* * * * *
(c) Examples. * * *
Example 2. (a) The facts are the same as Example 1, except that,
instead of the letter provided in paragraph (c) of Example 1,
Employee A provides the plan administrator of Plan M with a letter
from the plan administrator of Plan O representing that Plan O
satisfies the requirements of section 401(a) (or representing that
Plan O is intended to satisfy the requirements of section 401(a) and
that the administrator of Plan O is not aware of any Plan O
provision or operation that would result in the disqualification of
Plan O).
(b) Based upon such a letter, absent facts to the contrary, a plan
administrator may reasonably conclude that Plan O is qualified and that
the amount paid as a direct rollover is an eligible rollover
distribution.
* * * * *
John M. Dalrymple,
Acting Deputy Commissioner of Internal Revenue.
[FR Doc. 98-32931 Filed 12-16-98; 8:45 am]
BILLING CODE 4830-01-U