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IRS Notice 2020-62 Updates Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans
Practical Law Legal Update w-026-9315 (Approx. 5 pages)
IRS Notice 2020-62 Updates Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans
by Practical Law Employee Benefits & Executive Compensation
| Published on 07 Aug 2020 • USA (National/Federal) |
The Internal Revenue Service (IRS) has issued Notice 2020-62, which amends the two safe harbor explanations in Notice 2018-74 for the notices that must be provided by qualified retirement plans to all participants entitled to receive a distribution of their benefit, as required under Section 402(f) of the Internal Revenue Code (Code). The amendments relate to changes made by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and other clarifications.
On August 6, 2020, the IRS issued Notice 2020-62, which amends the two safe harbor explanations in Notice 2018-74 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 2018-74 Changes Safe Harbor Explanations for Recipients of Rollover Distributions from Qualified Retirement Plans).
The amendments relate to:
- 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). In 2018, the IRS provided updated explanations in Notice 2018-74.
Updated Code Section 402(f) Notices Reflect Changes Made By the SECURE Act
Notice 2020-62 amends the safe harbor explanations for both Code Section 402(f) notices for changes made by the SECURE Act, including:
- The exception to the 10% additional tax under Code Section 72(t) (26 U.S.C. § 72(t)) for qualified birth or adoption distributions (see Legal Update, Government Funding Legislation Includes the SECURE Act, Which Changes Retirement Plan Requirements: Penalty-Free Withdrawals from Retirement Plans in Case of Birth of Child or Adoption).
- The increase in age for the required beginning date for required minimum distributions (RMDs) from 70 ½ to 72 (see Legal Update, Government Funding Legislation Includes the SECURE Act, Which Changes Retirement Plan Requirements: Increase in Age for Required Beginning Date for Mandatory Distributions).
Notice 2020-62 also reiterates that the Code Section 402(f) notice is not required for coronavirus-related distributions under the CARES Act because they are not eligible rollover distributions for purposes of Code Section 401(a)(31) (26 U.S.C. § 401(a)(31)), even though a coronavirus-related distribution generally may be recontributed to a retirement plan (see Legal Update, IRS Notice 2020-50 Provides Guidance on Coronavirus-Related Distributions and Loans Under the CARES Act). The updated explanations also clarify that distributions of health and accident insurance premiums are not eligible for rollover.
Appendix A of Notice 2020-62 includes revised safe harbor explanations. Plan administrators may replace the safe harbor explanations from Notice 2018-74 with the explanation from Notice 2020-62.
The updated safe harbor explanations provided in Notice 2020-62 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 August 6, 2020.
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 familiarize themselves with the updated safe harbor explanations and use them in Code Section 402(f) notices sent to retirement plan participants. Employers should also ensure that any recordkeepers or service providers responsible for sending the 402(f) notices are using the updated safe harbor explanations provided in Notice 2020-62.