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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The Employee Benefits Security Administration (EBSA) has released final regulations and a related Prohibited Transaction Class Exemption that amend existing distribution requirements for terminated defined contribution plans, including abandoned plans, to allow rollovers into inherited IRAs for missing nonspouse beneficiaries. These final rules clarify the Pension Protection Act of 2006 (PPA; P.L. 109-280) provisions regarding missing participants and are effective on November 6, 2008.
Background
In April 2006, when EBSA first published its fiduciary safe harbor regulation, a distribution of benefits from an individual account plan to a nonspouse beneficiary was not considered an eligible rollover distribution under the provisions of Code Sec. 402(c) and, therefore, could not be rolled over into an individual retirement plan. However, the PPA amended Code Sec. 402(c) to permit the direct rollover of a deceased participant’s benefit from an eligible retirement plan to an individual retirement plan established on behalf of a designated nonspouse beneficiary. As a result, EBSA published an interim final rule in February 2007 amending its regulatory safe harbor to allow for distributions to missing non-spousal beneficiaries from a terminated individual account plan, including an abandoned plan.
Safe harbor amended
The final rule amends EBSA’s regulatory safe harbor for distributions from terminated (including abandoned) individual account plans to require that a deceased participant’s benefit be directly rolled over to an inherited IRA established to receive the distribution on behalf of a missing, designated nonspouse beneficiary. These amendments eliminate the prior safe harbor condition that required a distribution on behalf of a missing nonspouse beneficiary to be made only to an account other than an individual retirement plan. The final rule also makes conforming changes to the content requirements of the mandated participant and beneficiary termination notice.
Amendment to PTE 2006-06 adopted
EBSA also is amending PTE 2006-06 (see CCH Pension Plan Guide ¶16,649U ). Among other things, PTE 2006-06 permits a “qualified termination administrator” (QTA) of an abandoned individual account plan to select itself to provide services to the plan in connection with the plan’s termination, and to pay itself fees for those services.
In light of PPA changes, EBSA is amending PTE 2006-06 to require that, as a condition of relief under the exemption, benefits for a missing, designated nonspouse beneficiary be directly rolled over into an inherited IRA that fully complies with Code requirements. EBSA also clarifies that the exemption provides relief to a QTA that designates itself or an affiliate as the provider of an inherited IRA for a missing, designated nonspouse beneficiary pursuant to the exemption’s conditions. As noted in the preamble to the proposed amendments to PTE 2006-06, however, EBSA interprets PTE 2006-06 as currently available to the QTA for its self-selection as an inherited IRA provider subject to the conditions of the exemption. The amendment to PTE 2006-06 is effective November 6, 2008.
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