New Self-Certification Procedure for Late Rollovers
Employee Benefits Alert
The Internal Revenue Service (IRS) has issued Revenue Procedure 2016-47, which provides for a new self-certification procedure for participants who receive retirement plan distributions but inadvertently miss the 60-day time limit for rollovers. The procedure allows the participant to claim a waiver of the 60-day requirement, provided he certifies that he missed the deadline for one of the permitted reasons, and the plan administrator or individual retirement account trustee, custodian, or issuer (the IRA Trustee) may rely on the certification in accepting and reporting the rollover, subject to certain requirements described below.
Generally, distributions from tax-qualified plans such as 401(k) plans (as well as 403(a), 403(b) and 457 eligible governmental plans) are excluded from income if they are transferred to an eligible retirement plan no later than 60 days following receipt. The IRS is generally authorized to grant waivers in certain circumstances (for example, in the case of casualty, disaster, or other events beyond the individual’s reasonable control).
Under prior Revenue Procedure 2003-16, participants could apply for a waiver by requesting a letter ruling. Under the new procedure, the participant can provide a written certification to a plan administrator or the IRA Trustee using a model letter set forth in Revenue Procedure 2016-47 or one substantially similar to it. The certification must state that the contribution satisfies the following conditions:
- the IRS must not have previously denied a waiver request with respect to a rollover of the distribution;
- the participant must have missed the 60-day deadline because of his or her inability to complete a rollover due to one or more reasons set forth in Revenue Procedure 2016-47 (described below); and
- the contribution must be made to the plan, or IRA, as soon as practicable after the applicable reason no longer prevented the participant from making the contribution; this requirement is deemed to be satisfied if the contribution is made within 30 days after that time.
The reasons permitted for the missed deadline must be one of the following:
- an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
- the distribution, having been made in the form of a check, was misplaced and never cashed;
- the distribution was deposited into and remained in an account that the participant mistakenly thought was an eligible retirement plan;
- the participant’s principal residence was severely damaged;
- a member of the participant’s family died;
- the participant or a member of the participant’s family was seriously ill;
- the participant was incarcerated;
- restrictions were imposed by a foreign country;
- a postal error occurred;
- the distribution was made on account of a levy under Code § 6331 and the proceeds of the levy have been returned to the participant; or
- the party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the participant’s reasonable efforts to obtain the information.
A copy of the certification should be kept in the participant’s files and be available if requested on audit.
The plan administrator or IRA Trustee may rely on the participant’s certification in determining whether one of the conditions for the waiver has been met. However, the plan administrator or IRA Trustee may not rely on the certification for other purposes and must not have actual knowledge that is contrary to the certification.
A certification itself is technically not a waiver by the IRS of the 60-day rollover requirement (that is, the waiver is not actually granted just by submitting the certification). However, it allows the participant to report the contribution as a valid rollover unless later informed otherwise by the IRS. Furthermore, the IRS, in the course of an examination, may consider whether a participant’s contribution meets the requirements for a waiver. If the IRS determines that the conditions for the waiver have not been met, the participant may be subject to penalties, such as the penalty for failure to pay the proper amount of tax under Code Section 6651.
If you have any questions about the new certification procedure, please contact one of the attorneys in the Employee Benefits & Executive Compensation Group at Bradley.