Internal Revenue Code Section 402(f) requires plan administrators of certain retirement plans to provide a tax notice to payees that describes their rollover rights. The Internal Revenue Service (IRS) historically has provided model forms of this tax notice (sometimes referred to as a “402(f) notice”) for plan administrators’ use, most recently in 2018. The IRS recently issued an updated model notice to reflect some recent changes in the law, which requires plan administrators to take action now.
As a reminder, the tax notice should be provided with respect to the following retirement plans which pay benefits that are eligible to be rolled over, such as lump sums:
The notice should be provided to payees within 180 days before the plan pays benefits. The notice is normally provided with the plan’s benefit election package.
No, plan administrators do not need to use the model notice. For example, the IRS allows the model notice to be customized, such as by omitting information that is not relevant to the particular plan. For example, if a particular retirement plan does not have after-tax contributions, the section of the notice regarding rolling over after-tax contributions can be omitted. Alternatively, plan administrators can create their own form of notice, as long as it has all of the information required by Code section 402(f).
The updated model notice provided by the IRS modifies two provisions as a result of legal changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act):
The updated model notice also includes other minor modifications to improve clarity, such as rearranging bullet points and spelling out acronyms.
Plan administrators that utilize the model form will want to ensure that the new, updated notice is being used as soon as practicable. Plan administrators that use a custom form will want to update it to include the new information listed under “How is the New Model Notice Different?” above.
Most plan administrators rely on their third-party recordkeepers to provide the notice. In that case, a call or email to the recordkeeper to confirm that they will start utilizing the new notice is advisable. If the plan administrator self-administers the plan, the new form of tax notice can be found here.
The new model notice includes those legal changes occurring on or before August 6, 2020 that the IRS determined should be discussed in the section 402(f) notice. If other legal changes affecting the content of the notice occur after August 6, 2020, plan administrators may need to do their own updates to the notice, pending any future-issued IRS model notice.
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