Treasury Working to Make Rollovers to Plans Easier

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By Kristen Ricaurte Knebel

June 8 — It isn't so easy to roll your green over from one 401(k) plan to another, but the Treasury Department is looking to make that process simpler and less complex, an agency official said.

Currently, the market makes it fairly easy for someone to roll over funds from a 401(k) plan into an individual retirement account because “it has become fairly streamlined” and can be done electronically, J. Mark Iwry, senior adviser to the Treasury secretary and deputy assistant secretary for retirement and health policy at the Treasury, told the ERISA Advisory Council June 8.

But when a 401(k) plan is the potential recipient of a rollover, a plan sponsor will want some assurances and will want to go through the process of ascertaining whether the 401(k) plan sending the funds is a tax-qualified plan, Iwry said.

Treasury thought that one solution for this quandary would be for receiving plans to look up the sending plan's Form 5500—the form that is the annual return or report from an employee benefit plan—to see if the plan was indeed tax-qualified. “We thought you could look up a 5500 and it would be good,” Iwry said. “Turns out it’s not good enough.”

This feedback came from recordkeepers and from other industry insiders, so Treasury is working on this issue with recordkeepers and plan sponsors to make it easier for 401(k) plans to receive rollovers and for those receiving plans to get assurances that the funds they are getting are from tax-qualified plans, he said.

Some plan sponsors think they need to obtain a copy of a favorable determination letter from the sending 401(k) plan, or get a letter from the plan certifying that they are tax-qualified, Iwry said, but that's not the case.

“We’re getting the ideas from the industry to make it easier for the receiving plan,” Iwry said, but he added that they can't make it so easy that someone could surreptitiously “inject” taxable funds into a receiving plan.

Treasury hopes to encourage more rollovers to plans, while keeping in mind that “t’s not necessarily better to rollover to a plan rather than an IRA. In general, the playing field is tilted in favor of the rollover to the IRA,” he said.

It would just be ideal for people to have more of a choice and help people “consolidate where they want to,” Iwry said.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com