Automatic Rollover Safe Harbor: Final Rule and Prohibited Transaction Class Exemption (Posted on September 28, 2004 by )

The Department of Labor has issued a final regulation that establishes a safe harbor pursuant to which a fiduciary of a pension plan subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA), will be deemed to have satisfied his or her fiduciary responsibilities in connection with automatic rollovers of certain mandatory distributions to individual retirement plans. Click here to see a copy of the regulation. Footnote 7 to the preamble to this rule states as follows:

Section 657(a)(1)(B)(ii) of EGTRRA defines an “eligible plan” as a plan which provides for an immediate distribution to a participant of any “nonforfeitable accrued benefit for which the present value (as determined under section 411(a)(11) of the Code) does not exceed $5,000.” The staff of Treasury and IRS have advised the Department that the requirements of Code section 401(a)(31)(B) apply to a broad range of retirement plans including plans established under Code sections 401(a), 401(k), 403(a), 403(b) and 457.

Thus, the IRS rules (although not the Department of Labor ones) are intended to apply even to non-ERISA plans, such as governmental and church plans.

In connection with the issuance of the regulation, the Department of Labor also issued a Prohibited Transaction Class Exemption for the Establishment, Investment and Maintenance of Certain Individual Retirement Plans Pursuant to a Mandatory Distribution. A copy of the Prohibited Transaction Class Exemption can be viewed by clicking here.