IRS Guidance Eases Rollover Processing

Revenue Ruling 2014-9 simplifies the rollover process by introducing an easy way for a receiving plan to confirm the sending plan’s tax-qualified status. The plan administrator for the receiving plan can now simply check a recent annual report filing for the sending plan on a database that is readily available to the public online at www.efast.dol.gov. This eliminates the need for the two plans to communicate (with the individual as go-between), expedites the rollover process, and reduces associated paperwork.

Facilitating easier tax-free rollovers to qualified pension, 401(k), or other retirement plans can help American workers consolidate and better manage their retirement savings and possibly save on expenses, the agency notes.

The IRS explains that the law allows a tax-free transfer of savings, generally referred to as a “rollover,” to a new employer’s plan. However, the receiving plan must protect its tax-qualified status by determining that the source of the funds—the former employer’s plan—is also tax-qualified and that the incoming transfer complies with applicable rules. This can pose a practical impediment to completion of the rollover, as the receiving plan may require individuals to obtain a letter or other paperwork from the sending plan, and neither plan may have a strong incentive to streamline the rollover process. 

Savers are often required to jump through a series of hoops, and many ultimately give up in frustration, the IRS says. In these circumstances, it can be simpler and faster for an individual to just take a payout of the funds rather than to continue saving them by rolling them over to the new employer’s plan. The result is more “leakage” of savings from the retirement system and less financial security for individuals in retirement.

Revenue Ruling 2014-9 is here.