New IRS Ruling Eases Plan-to-Plan Rollover of Assets

In an effort to ease the administrative burden placed on plan sponsors and to foster portability of retirement savings for plan participants, the IRS has issued guidance that simplifies the transfer of assets between all types of qualified retirement plans.

IRS Revenue Ruling 2014-09, published in April, allows the plan administrator for the receiving plan to forego the burdensome task of verifying the legitimacy of the incoming plan -- a process that typically involved multiple rounds of communication and paperwork between the two plans with the employee acting as the middleman -- and thus ease and expedite the rollover process for both the employer and the employee.

Now, the plan administrator for the receiving plan need only access the most recently filed Form 5500 (annual report) for the incoming plan that is stored online on the EFAST2 database maintained by the Department of Labor. The guidance is effective immediately.

In the past, plan sponsors have had to take on the responsibility for confirming that the incoming rollover monies came from a plan that was compliant and met fiduciary standards. If problems were discovered after the fact, sponsors risked the possibility of having their own plan disqualified. This new ruling helps to ease that potential risk.

In addition to easing the fiduciary risk for plan sponsors, the new ruling is aimed at promoting workers' retirement readiness by making it easier to retain and grow their retirement savings in tax-qualified plans.

Industry analysts concede this ruling by the IRS is one small step in the right direction, but a crucial one as many plan participants, feeling overwhelmed by the rollover process, either cash out their plans -- particularly those with low balances -- or leave their money in their former employer's plan when they change jobs, which can create added costs and risks to all involved.

For more on the ruling visit the IRS website.

Source(s)  

1.  Employee Benefit Adviser, "The risk of inactive retirement plan participants," May 21, 2014.

2.  Pensions & Investments, "Treasury and IRS offer rollover relief," April 3, 2014.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2014 Wealth Management Systems Inc. All rights reserved.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.