June 2000


By Michael D. Schulman, CPA, Schulman & Company

As more employers adopt prototype qualified retirement plans, the burden of providing correct and timely participant statement reports increasingly falls upon the shoulders of their CPAs. Where there is no third-party plan administrator and the employer has assumed compliance responsibility, documents issued by the IRS with preapproved "standardized" language are helpful.

One important document is the report to the recipients of eligible rollover distributions, which can be rolled over into an IRA, another qualified employer plan, or a qualified annuity contract. The notice on these rollovers must be in writing and explain the rollover rules, the tax treatment of distributions not rolled over, and the favorable tax treatment of certain lump-sum distributions. IRC section 402(f) requires the employer to give this notice "within a reasonable period of time before making an eligible rollover distribution from an eligible retirement plan."

To assist practitioners, the IRS issued a model written explanation ("safe harbor explanation") that meets the requirements of IRC section 402(f), provided that the employer gives it to the recipient within a reasonable time before making the distribution. Treasury Regulations section 1.402(f)-1 requires the explanation no less than 30 days and no more than 90 days before the distribution is reasonable.

The model explanation, an updated version of the safe harbor explanation published in Notice 92-48, appears in IRS Notice 2000-11. The employer can customize the notice by omitting any sections that do not apply to the plan, such as "Nontaxable Payments," "Direct Rollover of a Series of Payments," "Repayment of Plan Loans," and "Hardship Distributions." *

Sheldon M. Geller, Esq.
Geller & Wind, Ltd.

Michael D. Schulman, CPA
Schulman & Company

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