The IRS has made some changes to its safe harbor notices related to retirement account rollovers. “Amendments…relate to allocation of pre-tax and after-tax amounts, distributions in the form of in-plan Roth rollovers, and ’certain other clarifications’ to the two safe harbor explanations,” Nevin Adams writes for the American Society of Pension Professionals and Actuaries’ website.


It’s important because sometimes, participants in certain retirement plans “incorrectly assume that they have the right to roll over IRA (plan) benefits into their employer’s retirement plan – that is, their employer’s retirement plan must accept their rollover amounts,” writes Shaun Terrill for Bloomberg BNA. “A recent tax court decision shows that, while qualified plans must offer participants the chance to roll over benefits, qualified plans are not required themselves to accept rollovers, even where the plan regularly accepts employee contributions.” If an employee takes a distribution from an account and plans to deposit it into another plan, but that plan doesn’t accept rollovers, “then the participant has a taxable event that also may include a 10 percent early distribution penalty,” Terrill writes.


The IRS’ changes to safe harbor notices is an update to employer guidelines related notifying employees (and others who participate in their plans) about their “options to roll over the amounts to defer taxation and the tax implications of taking a distribution,” writes Melissa A. Winn for Employee Benefit Adviser’s website. “Employers and other plan administrators can use the IRS’ updated explanations to satisfy these 402(f) notice obligations,” she writes.


So, what does it mean for your business and your clients?


“Plan sponsors and administrators should review their rollover election forms to ensure that participants are able to clearly indicate where they wish the taxable and non-taxable portions of their distributions to be sent,” Adams writes. “Processes regarding Form 1099-R preparations may need to be revised to allow for the designation of allocated amounts to different retirement accounts.”


Brokers should also help employers understand how important it is to encourage employees to examine the details of their plans. “Participants are well-advised to carefully read the terms of their plans (and subsequent employer plans, to the extent applicable to a situation where a participant is changing employers and wants to roll over amounts) to ascertain whether rollovers (and what kinds) will be accepted,” Terrill writes.