Enter to open, tab to navigate, enter to select
IRS Notice 2018-74 Changes Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans
Practical Law Legal Update w-016-6765 (Approx. 6 pages)
IRS Notice 2018-74 Changes Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans
by Practical Law Employee Benefits & Executive Compensation
| Published on 20 Sep 2018 • USA (National/Federal) |
Internal Revenue Service (IRS) Notice 2018-74 amends the two safe harbor explanations in Notice 2014-74 for notices that must be sent to recipients of eligible rollover distributions from qualified retirement plans as required under Section 402(f) of the Internal Revenue Code.
On September 18, 2018, the IRS issued Notice 2018-74, which amends the two safe harbor explanations in Notice 2014-74 for the notices that must be provided by qualified retirement plans to all participants entitled to receive a distribution of their benefit under Section 402(f) of the Internal Revenue Code (Code) (26 U.S.C. § 402(f)) (see Legal Update, IRS Notice 2014-74 Changes Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans).
The amendments relate to:
- Certain legislative changes and guidance issued since the publication of Notice 2014-74, including:
- changes related to qualified plan loan offsets, as defined in Section 13613 of the Tax Cuts and Jobs Act of 2017 (TCJA) (see Legal Update, Tax Reform Is Enacted, With Significant Implications for Executive Compensation and Employee Benefits: Employee Benefit-Related Provisions Under the Act); and
- guidance issued on self-certification of eligibility for a waiver of the deadline for completing a rollover, as described in Rev. Proc. 2016-47 (see Legal Update, IRS Issues Self-Certification Guidance for Recipients of Retirement Plan and IRA Distributions Who Inadvertently Miss the 60-Day Rollover Deadline).
- Other clarifications to the two safe harbor explanations.
Code Section 402(f) Notice Requirements
Code Section 402(f) requires plan administrators of defined contribution plans and defined benefit plans to provide a notice regarding plan payments to recipients of eligible rollover distributions before the distribution (26 U.S.C. § 402(f)). The IRS provided two safe harbor explanations in Notice 2014-74 for payments from either:
- A traditional, or non-Roth retirement plan account.
- A designated Roth retirement plan account (see Practice Note, Roth 401(k) Plans).
These safe harbor explanations are used by plan administrators and payors to satisfy the notice requirement of Code Section 402(f).
Updated Code Section 402(f) Notices Reflect Law Changes Since IRS Notice 2014-74
Notice 2018-74 amends the safe harbor explanations for both Code Section 402(f) notices for changes in the law since 2014, including:
- The extended rollover deadline for qualified plan loan offset amounts under the TCJA (see Practice Note, Qualified Retirement Plan Loans: Qualified Plan Loan Offset).
- The self-certification procedures for claiming eligibility for a waiver of the deadline for making rollovers under Rev. Proc. 2016-47 (see Legal Update, IRS Issues Self-Certification Guidance for Recipients of Retirement Plan and IRA Distributions Who Inadvertently Miss the 60-Day Rollover Deadline).
- The exception to the 10% additional tax under Code Section 72(t) (26 U.S.C. § 72(t)) for phased retirement distributions to certain federal retirees under the Moving Ahead for Progress in the 21st Century Act (MAP-21) (see Legal Update, President Obama Signs Transportation Bill with Pension Funding Provisions).
- The expanded exception to the 10% additional tax under Code Section 72(t) (26 U.S.C. § 72(t)) for specified federal employees who have reached age 50 under the Defending Public Safety Employees' Retirement Act (DPSERA).
Additional changes made to the safe harbor explanations include clarifications that:
- The 10% additional tax under Code Section 72(t) for early distributions applies only to amounts includable in income.
- Payments from individual retirement accounts (IRAs) do not fall within the general exception to the 10% additional tax under Code Section 72(t) for payments from a governmental plan made after a qualified public safety employee separates from service (if the employee will be at least age 50 in the year of the separation).
- Explain how the rollover rules apply to governmental Code Section 457(b) (26 U.S.C. §457(b)) plans that include designated Roth accounts (see Practice Note, State and Local Retirement Plans: Overview).
- Recognize the possibility that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollovers.
Appendix A of Notice 2018-74 includes revised safe harbor explanations. Plan administrators may replace the safe harbor explanations from Notice 2014-74 with the explanation from Notice 2018-74. Otherwise, Appendix B of Notice 2018-74 provides instructions on how to modify the safe harbor explanations in Notice 2014-74.
The updated safe harbor explanations provided in Notice 2018-74 may be used by plan administrators and payors to satisfy the Code Section 402(f) notice requirement. However, the updated safe harbor explanations will not satisfy Code Section 402(f) to the extent the explanations are no longer accurate because of a change in the relevant law occurring after September 18, 2018.
To learn more about the requirements that apply to Code Section 402(f) notices, see:
Practical Implications
Employers that sponsor qualified retirement plans, plan administrators, and employee benefit attorneys should be familiar with the new safe harbor explanations and use them in all Code Section 402(f) notices sent to retirement plan participants.
To the extent an employer's 401(k) plan record-keeper or service provider is responsible for sending Code Section 402(f) notices to plan participants, employers should confirm that these providers are using the updated safe harbor information provided in IRS Notice 2018-74.