IRS to Issue Automatic Rollover Model Amendment

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The Department of Labor issued final regulations on the automatic rollover rules on September 28, 2004. The final regulations apply to plans that provide for cash-out distributions to participants with account balances between $1,000 and $5,000. Under the new requirements, if a participant does not elect to roll over the distribution or to receive the distribution, the plan automatically must roll over the distribution to an IRA. The final regulations provide a safe harbor method for a plan fiduciary to satisfy its fiduciary obligations with respect to both the selection of the IRA provider and the investment of the funds rolled over to the IRA.

In addition, the final regulations permit the plan fiduciary to apply the safe harbor with respect to distributions of $1,000 or less. The new rules are effective for distributions occurring on or after March 28, 2005, and employers will need to amend their plans to include the automatic rollover requirements.

The IRS announced it is drafting a model amendment that employers using prototype, volume submitter and individually designed plans may adopt to bring their plans into compliance. The Service expects the model amendment to be available in a couple of months. The IRS also expects to address some other issues when it releases the model amendment. Although the announcement did not provide any further details, we expect that prototype sponsors will be able to adopt the amendment on behalf of their adopting employers.

The new rules also will require an employer to amend its summary plan description or provide a summary of material modifications (SMM) to explain the automatic rollover requirements. SunGard Corbel will make available the model amendment and a sample SMM shortly after the IRS releases the model amendment. These will also be included in The Pension Library ERISA Forms supplement.

We will cover this and many other interesting topics in our ERISA Workshop (lost participants, orphan plans, compensation paid after termination of employment, 401(k) plan corrections, late deposits of deferrals, QDROs, new USERRA regulations, and same gender marriage). For more information, visit our Web site.