If a participant is to receive a distribution, the plan must provide the participant with a notice explaining the rollover rules.
Description: A participant should receive this notice when he or she receives a rollover distribution from the plan. A rollover distribution occurs when a terminated participant takes a distribution from the plan or an active participant takes an in-service distribution that is eligible to be rolled over and moves it to another qualified plan or individual retirement arrangement. Consequently, the distribution is not taxed until it is distributed from the new qualified plan or individual retirement arrangement. The plan is also required to offer a non-spouse beneficiary the opportunity to roll over the deceased participant’s account balance and must notify the non-spouse beneficiary that the deceased participant’s account balance is eligible for rollover.
What it should contain: The notice, commonly known as a 402(f) Notice, generally explains the rollover rules, describes the effects of rolling an eligible rollover distribution to an IRA or another plan and the effects of not rolling it over, including the automatic 20% withholding. Notice 2009-68 contains two sample explanations that satisfy the requirements of the notice employers must provide to employees leaving with retirement assets. The sample explanations state, in plain language, an employee’s options when receiving an eligible rollover distribution. The sample explanations include information on distributions from a designated Roth account under an employer plan and explain rules that apply in special situations, such as when a distribution is made to a surviving spouse or other beneficiary.
Timing: The notice must be provided to plan participants within a reasonable period of time. The notice should be provided no less than 30 days and no more than 180 days before the distribution is to be made. The participant may waive the 30-day period. If a participant dies, then his or her spouse or beneficiary must receive this notice.
Who is responsible for sending it: The administrator of the plan.