by Marissa A. Olsen

The IRS just issued a new safe harbor notice that plan administrators may provide to recipients of eligible rollover distributions from employer plans in order to satisfy the changes resulting from the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). EGTRRA expanded the rules governing the types of plans that can distribute and receive eligible rollover distributions. (Click here to view the entire IRS Notice 2002-3 and for additional highlights of EGTRRA changes to rollover distribution rules.)

Who is affected? Plan administrators of § 401(a), § 403(a), § 403(b) and § 457 governmental plans must provide a written notice to a recipient of an "eligible rollover distribution." An "eligible rollover distribution" is a payment that may be rolled over to an "eligible retirement plan." After EGTRRA, an "eligible retirement plan" includes § 401(a) qualified plans (including profit-sharing or stock bonus plans money purchase plans, and defined benefit plans), § 403(a) annuity plans, § 403(b) tax-sheltered annuity plans, and eligible § 457(b) plans maintained by governmental employers.

When do the new requirements go into effect? The new notice requirements apply to distributions made on or after January 1, 2002. If a plan administrator makes reasonable efforts to comply with the changes of EGTRRA, no penalty will be imposed for failing to provide the expanded explanation with distributions made before April 14, 2002.

What should plan administrators do to comply? Plan administrators of § 401(a), § 403(a), § 403(b), and § 457 governmental plans should update their eligible rollover distribution notice as soon as possible. You should no longer use older pre-EGTRRA safe harbor notices. The sample notices included below will satisfy the Internal Revenue Code requirements if provided to a recipient within a reasonable period of time before the distribution is made. (In general, a reasonable period of time for providing an explanation is between 30 and 90 days before the distribution is made but the 30-day "reasonable time" period can be waived by the employee if he or she wants the distribution sooner.) The safe harbor notice may be customized by omitting any portion that does not apply to the plan. If you are an administrator of a § 401(a), § 403(a), or § 403(b) plan, click here to retrieve the safe harbor notice. If you are an administrator of a § 457 governmental plan, click here to retrieve the safe harbor notice.

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