Rev. Rul. 2014-9 [PDF 27 KB] provides what an IRS transmittal message describes as “safe harbor due diligence procedures” that a plan administrator may follow in order to be deemed to have reasonably concluded that an amount was a valid rollover contribution.
Rev. Rul. 2014-9 further provides two new streamlined safe harbor due diligence procedures that, in the absence of evidence to the contrary, will give rise to the presumption that the administrator of the receiving plan reasonably concluded that a rollover was valid.
Background - Factual situation 1
Rev. Rul. 2014-9 considers two factual situations.
In Situation 1, an employer maintains a profit-sharing plan that:
- Is qualified under section 401(a) and covers a class of employees
- Provides that any employee who is in the covered class may make a rollover contribution to the plan
- Does not accept rollover contributions of after-tax amounts or amounts attributable to designated Roth contributions
An employee is eligible to make rollover contributions to the plan; has a vested account balance in the prior employer’s plan; and is eligible for a distribution under the terms of the prior plan.
In 2014, the employee requests a distribution of her vested account balance from the prior plan and elects that it be paid to the new employer’s plan in the form of a direct rollover. A check is issued and payable to the trustee for the new employer’s plan, for the employee’s benefit. The employee delivers the check to the plan administrator and certifies that the distribution does not include after-tax contributions or amounts attributable to designated Roth contributions.
The plan administrator accesses the a database maintained by the Labor Department and searches for the most recently filed Form 5500 for the former employer’s plan. The latest Form 5500, line 8a, does not include “code 3C” (i.e., for a plan not intended to be qualified under section 401, 403, or 408).
Background - Factual situation 2
In Situation 2, the facts are the same except:
- The employee has an account balance in a traditional IRA (not a Roth IRA or a SIMPLE IRA). Also, it is not an inherited IRA.
- The employee requests a distribution of her account balance in the form of a direct payment from the IRA to the plan, and a check is issued and made payable to the plan trustee for the benefit of the employee.
- The employee delivers the check, including a check stub that identifies the IRA as the source of the funds, to the plan administrator. The employee certifies that: (1) the distribution from the IRA includes no after-tax amounts; and (2) she will not have attained age 70½ years by the end of the year in which the check is issued.
Rev. Rul. 2014-9 conclusions
The IRS determined that:
- Under the facts presented in Situation 1, and absent any evidence to the contrary, the plan administrator may reasonably conclude that the potential rollover contribution by the employee from the prior plan to the new plan is a valid rollover contribution.
- Under the facts presented in Situation 2, absent any evidence to the contrary, the plan administrator may reasonably conclude that the potential rollover contribution by the employee from the IRS to the plan is a valid rollover contribution.
The IRS indicated that when accepting a rollover from another qualified plan, the plan administrator of the plan accepting the rollover must review the latest Form 5500 filed by the former employer’s plan, to conclude that the former employer’s plan is a qualified plan. When the rollover funds are provided from an IRA, the IRS indicated the plan administrator must conclude the source of the funds is a traditional, non-inherited IRA.
Rev. Rul. 2014-9 concludes that in both situations, if it is later determined that the amount rolled over is an invalid rollover contribution, the amount rolled over plus any attributable earnings must be distributed to the employee “within a reasonable time” after such determination.