[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.401(a)(31)-1]

[Page 266-274]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.401(a)(31)-1  Requirement to offer direct rollover of eligible 
rollover distributions; questions and answers.

    The following questions and answers relate to the qualification 
requirement imposed by section 401(a)(31) of the Internal Revenue Code 
of 1986, pertaining to the direct rollover option for eligible rollover 
distributions from pension, profit-sharing, and stock bonus plans. 
Section 401(a)(31) was added by section 522(a) of the Unemployment 
Compensation Amendments of 1992, Public Law 102-318, 106 Stat. 290 
(UCA). For additional UCA guidance under sections 402(c), 402(f), 
403(b)(8) and (10), and

[[Page 267]]

3405(c), see Sec. Sec. 1.402(c)-2, 1.402(f)-1, and 1.403(b)-2, and 
Sec. 31.3405(c)-1 of this chapter, respectively.

                            List of Questions

    Q-1: What are the direct rollover requirements under section 
401(a)(31)?
    Q-2: Does section 401(a)(31) require that a qualified plan permit a 
direct rollover to be made to a qualified trust that is not part of a 
defined contribution plan?
    Q-3: What is a direct rollover that satisfies section 401(a)(31), 
and how is it accomplished?
    Q-4: Is providing a distributee with a check for delivery to an 
eligible retirement plan a reasonable means of accomplishing a direct 
rollover?
    Q-5: Is an eligible rollover distribution that is paid to an 
eligible retirement plan in a direct rollover currently includible in 
gross income or subject to 20-percent withholding?
    Q-6: What procedures may a plan administrator prescribe for electing 
a direct rollover, and what information may the plan administrator 
require a distributee to provide when electing a direct rollover?
    Q-7: May the plan administrator treat a distributee as having made 
an election under a default procedure where the distributee does not 
affirmatively elect to make or not make a direct rollover within a 
certain time period?
    Q-8: May the plan administrator establish a deadline after which the 
distributee may not revoke an election to make or not make a direct 
rollover?
    Q-9: Must the plan administrator permit a distributee to elect to 
have a portion of an eligible rollover distribution paid to an eligible 
retirement plan in a direct rollover and to have the remainder of that 
distribution paid to the distributee?
    Q-10: Must the plan administrator allow a distributee to divide an 
eligible rollover distribution into two or more separate distributions 
to be paid in direct rollovers to two or more eligible retirement plans?
    Q-11: Will a plan satisfy section 401(a)(31) if the plan 
administrator does not permit a distributee to elect a direct rollover 
if his or her eligible rollover distributions during a year are 
reasonably expected to total less than $200?
    Q-12: Is a plan administrator permitted to treat a distributee's 
election to make or not make a direct rollover with respect to one 
payment in a series of periodic payments as applying to all subsequent 
payments in the series?
    Q-13: Is the eligible retirement plan designated by a distributee to 
receive a direct rollover distribution required to accept the 
distribution?
    Q-14. If a plan accepts an invalid rollover contribution, whether or 
not as a direct rollover, how will the contribution be treated for 
purposes of applying the qualification requirements of section 401(a) or 
403(a) to the plan?
    Q-15: For purposes of applying the plan qualification requirements 
of section 401(a), is an eligible rollover distribution that is paid to 
an eligible retirement plan in a direct rollover a distribution and 
rollover or is it a transfer of assets and liabilities?
    Q-16: Must a direct rollover option be provided for an eligible 
rollover distribution that is in the form of a plan loan offset amount?
    Q-17: Must a direct rollover option be provided for an eligible 
rollover distribution from a qualified plan distributed annuity 
contract?
    Q-18: What assumptions may a plan administrator make regarding 
whether a benefit is an eligible rollover distribution?
    Q-19: When must a qualified plan be amended to comply with section 
401(a)(31)?

                          Questions and Answers

    Q-1: What are the direct rollover requirements under section 
401(a)(31)?
    A-1: (a) General rule. To satisfy section 401(a)(31), added by UCA, 
a plan must provide that if the distributee of any eligible rollover 
distribution elects to have the distribution paid directly to an 
eligible retirement plan, and specifies the eligible retirement plan to 
which the distribution is to be paid, then the distribution will be paid 
to that eligible retirement plan in a direct rollover described in Q&A-3 
of this section. Thus, the plan must give the distributee the option of 
having his or her distribution paid in a direct rollover to an eligible 
retirement plan specified by the distributee. For purposes of section 
401(a)(31) and this section, eligible rollover distribution has the 
meaning set forth in section 402(c)(4) and Sec. 1.402(c)-2, Q&A-3 
through Q&A-10 and Q&A-14, except as otherwise provided in Q&A-2 of this 
section, eligible retirement plan has the meaning set forth in section 
402(c)(8)(B) and Sec. 1.402(c)-2, Q&A-2.
    (b) Related Internal Revenue Code provisions--(1) Mandatory 
withholding. If a distributee of an eligible rollover distribution does 
not elect to have the eligible rollover distribution paid directly from 
the plan to an eligible retirement plan in a direct rollover under 
section

[[Page 268]]

401(a)(31), the eligible rollover distribution is subject to 20-percent 
income tax withholding under section 3405(c). See Sec. 31.3405(c)-1 of 
this chapter for guidance concerning the withholding requirements 
applicable to eligible rollover distributions.
    (2) Notice requirement. Section 402(f) requires the plan 
administrator of a qualified plan to provide, within a reasonable period 
of time before making an eligible rollover distribution, a written 
explanation to the distributee of the distributee's right to elect a 
direct rollover and the withholding consequences of not making that 
election. The explanation also is required to provide certain other 
relevant information relating to the taxation of distributions. See 
Sec. 1.402(f)-1 for guidance concerning the written explanation 
required under section 402(f).
    (3) Section 403(b) annuities. Section 403(b)(10) provides that 
requirements similar to those imposed by section 401(a)(31) apply to 
annuities described in section 403(b). See Sec. 1.403(b)-2 for guidance 
concerning the direct rollover requirements for distributions from 
annuities described in section 403(b).
    (c) Effective date--(1) Statutory effective date. Section 401(a)(31) 
applies to eligible rollover distributions made on or after January 1, 
1993.
    (2) Regulatory effective date. This section applies to eligible 
rollover distributions made on or after October 19, 1995. For eligible 
rollover distributions made on or after January 1, 1993 and before 
October 19, 1995, Sec. 1.401(a)(31)-1T (as it appeared in the April 1, 
1995 edition of 26 CFR part 1), applies. However, for any distribution 
made on or after January 1, 1993 but before October 19, 1995, a plan may 
satisfy section 401(a)(31) by substituting any or all provisions of this 
section for the corresponding provisions of Sec. 1.401(a)(31)-1T, if 
any.
    Q-2: Does section 401(a)(31) require that a qualified plan permit a 
direct rollover to be made to a qualified trust that is not part of a 
defined contribution plan?
    A-2: No. Section 401(a)(31)(D) limits the types of qualified trusts 
that are treated as eligible retirement plans to defined contribution 
plans that accept eligible rollover distributions. Therefore, although a 
plan is permitted, at a participant's election, to make a direct 
rollover to any type of eligible retirement plan, as defined in section 
402(c)(8)(B) (including a defined benefit plan), a plan will not fail to 
satisfy section 401(a)(31) solely because the plan will not permit a 
direct rollover to a qualified trust that is part of a defined benefit 
plan. In contrast, if a distributee elects a direct rollover of an 
eligible rollover distribution to an annuity plan described in section 
403(a), that distribution must be paid to the annuity plan, even if the 
recipient annuity plan is a defined benefit plan.
    Q-3: What is a direct rollover that satisfies section 401(a)(31), 
and how is it accomplished?
    A-3: A direct rollover that satisfies section 401(a)(31) is an 
eligible rollover distribution that is paid directly to an eligible 
retirement plan for the benefit of the distributee. A direct rollover 
may be accomplished by any reasonable means of direct payment to an 
eligible retirement plan. Reasonable means of direct payment include, 
for example, a wire transfer or the mailing of a check to the eligible 
retirement plan. If payment is made by check, the check must be 
negotiable only by the trustee of the eligible retirement plan. If the 
payment is made by wire transfer, the wire transfer must be directed 
only to the trustee of the eligible retirement plan. In the case of an 
eligible retirement plan that does not have a trustee (such as a 
custodial individual retirement account or an individual retirement 
annuity), the custodian of the plan or issuer of the contract under the 
plan, as appropriate, should be substituted for the trustee for purposes 
of this Q&A-3, and Q&A-4 of this section.
    Q-4: Is providing a distributee with a check for delivery to an 
eligible retirement plan a reasonable means of accomplishing a direct 
rollover?
    A-4: Providing the distributee with a check and instructing the 
distributee to deliver the check to the eligible retirement plan is a 
reasonable means of direct payment, provided that the check is made 
payable as follows: [Name of the trustee] as trustee of [name of the 
eligible retirement plan]. For example, if the name of the eligible

[[Page 269]]

retirement plan is ``Individual Retirement Account of John Q. Smith,'' 
and the name of the trustee is ``ABC Bank,'' the payee line of a check 
would read ``ABC Bank as trustee of Individual Retirement Account of 
John Q. Smith.'' Unless the name of the distributee is included in the 
name of the eligible retirement plan, the check also must indicate that 
it is for the benefit of the distributee. If the eligible retirement 
plan is not an individual retirement account or an individual retirement 
annuity, the payee line of the check need not identify the trustee by 
name. For example, the payee line of a check for the benefit of 
distributee Jane Doe might read, ``Trustee of XYZ Corporation Savings 
Plan FBO Jane Doe.''
    Q-5: Is an eligible rollover distribution that is paid to an 
eligible retirement plan in a direct rollover currently includible in 
gross income or subject to 20-percent withholding?
    A-5: No. An eligible rollover distribution that is paid to an 
eligible retirement plan in a direct rollover is not currently 
includible in the distributee's gross income under section 402(c) and is 
exempt from the 20-percent withholding imposed under section 3405(c)(2). 
However, when any portion of the eligible rollover distribution is 
subsequently distributed from the eligible retirement plan, that portion 
will be includible in gross income to the extent required under section 
402, 403, or 408.
    Q-6: What procedures may a plan administrator prescribe for electing 
a direct rollover, and what information may the plan administrator 
require a distributee to provide when electing a direct rollover?
    A-6: (a) Permissible procedures. Except as otherwise provided in 
paragraph (b) of this Q&A-6, the plan administrator may prescribe any 
procedure for a distributee to elect a direct rollover under section 
401(a)(31), provided that the procedure is reasonable. The procedure may 
include any reasonable requirement for information or documentation from 
the distributee in addition to the items of adequate information 
specified in Sec. 31.3405(c)-1(b), Q&A-7 of this chapter. For example, 
it would be reasonable for the plan administrator to require that the 
distributee provide a statement from the designated recipient plan that 
the plan will accept the direct rollover for the benefit of the 
distributee and that the recipient plan is, or is intended to be, an 
individual retirement account, an individual retirement annuity, a 
qualified annuity plan described in section 403(a), or a qualified trust 
described in section 401(a), as applicable. In the case of a designated 
recipient plan that is a qualified trust, it also would be reasonable 
for the plan administrator to require a statement that the qualified 
trust is not excepted from the definition of an eligible retirement plan 
by section 401(a)(31)(D) (i.e., is not a defined benefit plan).
    (b) Impermissible procedures. A plan will fail to satisfy section 
401(a)(31) if the plan administrator prescribes any unreasonable 
procedure, or requires information or documentation, that effectively 
eliminates or substantially impairs the distributee's ability to elect a 
direct rollover. For example, it would effectively eliminate or 
substantially impair the distributee's ability to elect a direct 
rollover if the recipient plan required the distributee to obtain an 
opinion of counsel stating that the eligible retirement plan receiving 
the rollover is a qualified plan or individual retirement account. 
Similarly, it would effectively eliminate or substantially impair the 
distributee's ability to elect a direct rollover if the distributing 
plan required a letter from the recipient eligible retirement plan 
stating that, upon request by the distributing plan, the recipient plan 
will automatically return any direct rollover amount that the 
distributing plan advises the recipient plan was paid incorrectly. It 
would also effectively eliminate or substantially impair the 
distributee's ability to elect a direct rollover if the distributing 
plan required, as a condition for making a direct rollover, a letter 
from the recipient eligible retirement plan indemnifying the 
distributing plan for any liability arising from the distribution.
    Q-7: May the plan administrator treat a distributee as having made 
an election under a default procedure

[[Page 270]]

where the distributee does not affirmatively elect to make or not make a 
direct rollover within a certain time period?
    A-7: Yes, the plan administrator may establish a default procedure 
whereby any distributee who fails to make an affirmative election is 
treated as having either made or not made a direct rollover election. 
However, the plan administrator may not make a distribution under any 
default procedure unless the distributee has received an explanation of 
the default procedure and an explanation of the direct rollover option 
as required under section 402(f) and Sec. 1.402(f)-1, Q&A-1 and unless 
the timing requirements described in Sec. 1.402(f)-1, Q&A-2 and Q&A-3 
have been satisfied with respect to the explanations of both the default 
procedure and the direct rollover option.
    Q-8: May the plan administrator establish a deadline after which the 
distributee may not revoke an election to make or not make a direct 
rollover?
    A-8: Yes, but the plan administrator is not permitted to prescribe 
any deadline or time period with respect to revocation of a direct 
rollover election that is more restrictive for the distributee than that 
which otherwise applies under the plan to revocation of the form of 
distribution elected by the distributee.
    Q-9: Must the plan administrator permit a distributee to elect to 
have a portion of an eligible rollover distribution paid to an eligible 
retirement plan in a direct rollover and to have the remainder of that 
distribution paid to the distributee?
    A-9: Yes, the plan administrator must permit a distributee to elect 
to have a portion of an eligible rollover distribution paid to an 
eligible retirement plan in a direct rollover and to have the remainder 
paid to the distributee. However, the plan administrator is permitted to 
require that, if the distributee elects to have only a portion of an 
eligible rollover distribution paid to an eligible retirement plan in a 
direct rollover, that portion be equal to at least a specified minimum 
amount, provided the specified minimum amount is less than or equal to 
$500 or any greater amount as prescribed by the Commissioner in revenue 
rulings, notices, and other guidance published in the Internal Revenue 
Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter. If the entire 
amount of the eligible rollover distribution is less than or equal to 
the specified minimum amount, the plan administrator need not allow the 
distributee to divide the distribution.
    Q-10: Must the plan administrator allow a distributee to divide an 
eligible rollover distribution into two or more separate distributions 
to be paid in direct rollovers to two or more eligible retirement plans?
    A-10: No. The plan administrator is not required (but is permitted) 
to allow the distributee to divide an eligible rollover distribution 
into separate distributions to be paid to two or more eligible 
retirement plans in direct rollovers. Thus, the plan administrator may 
require that the distributee select a single eligible retirement plan to 
which the eligible rollover distribution (or portion thereof) will be 
distributed in a direct rollover.
    Q-11: Will a plan satisfy section 401(a)(31) if the plan 
administrator does not permit a distributee to elect a direct rollover 
if his or her eligible rollover distributions during a year are 
reasonably expected to total less than $200?
    A-11: Yes. A plan will satisfy section 401(a)(31) even though the 
plan administrator does not permit any distributee to elect a direct 
rollover with respect to eligible rollover distributions during a year 
that are reasonably expected to total less than $200 or any lower 
minimum amount specified by the plan administrator. The rules described 
in Sec. 31.3405(c)-1, Q&A-14 of this chapter (relating to whether 
withholding under section 3405(c) is required for an eligible rollover 
distribution that is less than $200) also apply for purposes of 
determining whether a direct rollover election under section 401(a)(31) 
must be provided for an eligible rollover distribution that is less than 
$200 or the lower specified amount.
    Q-12: Is a plan administrator permitted to treat a distributee's 
election to make or not make a direct rollover with respect to one 
payment in a series

[[Page 271]]

of periodic payments as applying to all subsequent payments in the 
series?
    A-12: (a) Yes. A plan administrator is permitted to treat a 
distributee's election to make or not make a direct rollover with 
respect to one payment in a series of periodic payments as applying to 
all subsequent payments in the series, provided that:
    (1) The employee is permitted at any time to change, with respect to 
subsequent payments, a previous election to make or not make a direct 
rollover; and
    (2) The written explanation provided under section 402(f) explains 
that the election to make or not make a direct rollover will apply to 
all future payments unless the employee subsequently changes the 
election.
    (b) See Sec. 1.402(f)-1, Q&A-3 for further guidance concerning the 
rules for providing section 402(f) notices when eligible rollover 
distributions are made in a series of periodic payments.
    Q-13: Is the eligible retirement plan designated by a distributee to 
receive a direct rollover distribution required to accept the 
distribution?
    A-13: No. Although section 401(a)(31) requires qualified plans to 
provide distributees the option to make a direct rollover of their 
eligible rollover distributions to an eligible retirement plan, it 
imposes no requirement that any eligible retirement plan accept 
rollovers. Thus, a plan can refuse to accept rollovers. Alternatively, a 
plan can limit the circumstances under which it will accept rollovers. 
For example, a plan can limit the types of plans from which it will 
accept a rollover or limit the types of assets it will accept in a 
rollover (such as accepting only cash or its equivalent).
    Q-14. If a plan accepts an invalid rollover contribution, whether or 
not as a direct rollover, how will the contribution be treated for 
purposes of applying the qualification requirements of section 401(a) or 
403(a) to the plan?
    A-14. (a) Acceptance of invalid rollover contribution. If a plan 
accepts an invalid rollover contribution, the contribution will be 
treated, for purposes of applying the qualification requirements of 
section 401(a) or 403(a) to the receiving plan, as if it were a valid 
rollover contribution, if the following two conditions are satisfied. 
First, when accepting the amount from the employee as a rollover 
contribution, the plan administrator of the receiving plan reasonably 
concludes that the contribution is a valid rollover contribution. While 
evidence that the distributing plan is the subject of a determination 
letter from the Commissioner indicating that the distributing plan is 
qualified would be useful to the receiving plan administrator in 
reasonably concluding that the contribution is a valid rollover 
contribution, it is not necessary for the distributing plan to have such 
a determination letter in order for the receiving plan administrator to 
reach that conclusion. Second, if the plan administrator of the 
receiving plan later determines that the contribution was an invalid 
rollover contribution, the amount of the invalid rollover contribution, 
plus any earnings attributable thereto, is distributed to the employee 
within a reasonable time after such determination.
    (b) Definitions. For purposes of this Q&A-14:
    (1) An invalid rollover contribution is an amount that is accepted 
by a plan as a rollover within the meaning of Sec. 1.402(c)-2, Q&A-1 
(or as a rollover contribution within the meaning of section 
408(d)(3)(A)(ii)) but that is not an eligible rollover distribution from 
a qualified plan (or an amount described in section 408(d)(3)(A)(ii)) or 
that does not satisfy the other requirements of section 401(a)(31), 
402(c), or 408(d)(3) for treatment as a rollover or a rollover 
contribution.
    (2) A valid rollover contribution is a contribution that is accepted 
by a plan as a rollover within the meaning of Sec. 1.402(c)-2, Q&A-1 or 
as a rollover contribution within the meaning of section 408(d)(3) and 
that satisfies the requirements of section 401(a)(31), 402(c), or 
408(d)(3) for treatment as a rollover or a rollover contribution.
    (c) Examples. The provisions of paragraph (a) of this Q&A-14 are 
illustrated by the following examples:

    Example 1. (i) Employer X maintains for its employees Plan M, a 
profit sharing plan qualified under section 401(a). Plan M provides that 
any employee of Employer X may make a rollover contribution to Plan M. 
Employee A is an employee of Employer X, will

[[Page 272]]

not have attained age 70\1/2\ by the end of the year, and has a vested 
account balance in Plan O (a plan maintained by Employee A's prior 
employer). Employee A elects a single sum distribution from Plan O and 
elects that it be paid to Plan M in a direct rollover.
    (ii) Employee A provides the plan administrator of Plan M with a 
letter from the plan administrator of Plan O stating that Plan O has 
received a determination letter from the Commissioner indicating that 
Plan O is qualified.
    (iii) Based upon such a letter, absent facts to the contrary, a plan 
administrator may reasonably conclude that Plan O is qualified and that 
the amount paid as a direct rollover is an eligible rollover 
distribution.
    Example 2. (i) The facts are the same as Example 1, except that, 
instead of the letter provided in paragraph (ii) of Example 1, Employee 
A provides the plan administrator of Plan M with a letter from the plan 
administrator of Plan O representing that Plan O satisfies the 
requirements of section 401(a) (or representing that Plan O is intended 
to satisfy the requirements of section 401(a) and that the administrator 
of Plan O is not aware of any Plan O provision or operation that would 
result in the disqualification of Plan O).
    (ii) Based upon such a letter, absent facts to the contrary, a plan 
administrator may reasonably conclude that Plan O is qualified and that 
the amount paid as a direct rollover is an eligible rollover 
distribution.
    Example 3. (i) Same facts as Example 1, except that Employee A 
elects to receive the distribution from Plan O and wishes to make a 
rollover contribution described in section 402 rather than a direct 
rollover.
    (ii) When making the rollover contribution, Employee A certifies 
that, to the best of Employee A's knowledge, Employee A is entitled to 
the distribution as an employee and not as a beneficiary, the 
distribution from Plan O to be contributed to Plan M is not one of a 
series of periodic payments, the distribution from Plan O was received 
by Employee A not more than 60 days before the date of the rollover 
contribution, and the entire amount of the rollover contribution would 
be includible in gross income if it were not being rolled over.
    (iii) As support for these certifications, Employee A provides the 
plan administrator of Plan M with two statements from Plan O. The first 
is a letter from the plan administrator of Plan O, as described in 
Example 1, stating that Plan O has received a determination letter from 
the Commissioner indicating that Plan O is qualified. The second is the 
distribution statement that accompanied the distribution check. The 
distribution statement indicates that the distribution is being made by 
Plan O to Employee A, indicates the gross amount of the distribution, 
and indicates the amount withheld as Federal income tax. The amount 
withheld as Federal income tax is 20 percent of the gross amount of the 
distribution. Employee A contributes to Plan M an amount not greater 
than the gross amount of the distribution stated in the letter from Plan 
O and the contribution is made within 60 days of the date of the 
distribution statement from Plan O.
    (iv) Based on the certifications and documentation provided by 
Employee A, absent facts to the contrary, a plan administrator may 
reasonably conclude that Plan O is qualified and that the distribution 
otherwise satisfies the requirements of section 402(c) for treatment as 
a rollover contribution.
    Example 4. (i) The facts are the same as in Example 3, except that, 
rather than contributing the distribution from Plan O to Plan M, 
Employee A contributes the distribution from Plan O to IRA P, an 
individual retirement account described in section 408(a). After the 
contribution of the distribution from Plan O to IRA P, but before the 
year in which Employee A attains age 70\1/2\, Employee A requests a 
distribution from IRA P and decides to contribute it to Plan M as a 
rollover contribution. To make the rollover contribution, Employee A 
endorses the check received from IRA P as payable to Plan M.
    (ii) In addition to providing the certifications described in 
Example 3 with respect to the distribution from Plan O, Employee A 
certifies that, to the best of Employee A's knowledge, the contribution 
to IRA P was not made more than 60 days after the date Employee A 
received the distribution from Plan O, no amount other than the 
distribution from Plan O has been contributed to IRA P, and the 
distribution from IRA P was received not more than 60 days earlier than 
the rollover contribution to Plan M.
    (iii) As support for these certifications, in addition to the two 
statements from Plan O described in Example 3, Employee A provides 
copies of statements from IRA P. The statements indicate that the 
account is identified as an IRA, the account was established within 60 
days of the date of the letter from Plan O informing Employee A that an 
amount had been distributed, and the opening balance in the IRA does not 
exceed the amount of the distribution described in the letter from Plan 
O. There is no indication in the statements that any additional 
contributions have been made to IRA P since the account was opened. The 
date on the check from IRA P is less than 60 days before the date that 
Employee A makes the contribution to Plan M.
    (iv) Based on the certifications and documentation provided by 
Employee A, absent facts to the contrary, a plan administrator may 
reasonably conclude that Plan O is qualified and that the contribution 
by Employee A is a rollover contribution described in section 
408(d)(3)(A)(ii) that satisfies the

[[Page 273]]

other requirements of section 408(d)(3) for treatment as a rollover 
contribution.

    Q-15: For purposes of applying the plan qualification requirements 
of section 401(a), is an eligible rollover distribution that is paid to 
an eligible retirement plan in a direct rollover a distribution and 
rollover or is it a transfer of assets and liabilities?
    A-15: For purposes of applying the plan qualification requirements 
of section 401(a), a direct rollover is a distribution and rollover of 
the eligible rollover distribution and not a transfer of assets and 
liabilities. For example, if the consent requirements under section 
411(a)(11) or sections 401(a)(11) and 417(a)(2) apply to the 
distribution, they must be satisfied before the eligible rollover 
distribution may be distributed in a direct rollover. Similarly, the 
direct rollover is not a transfer of assets and liabilities that must 
satisfy the requirements of section 414(l). Finally, a direct rollover 
is not a transfer of benefits for purposes of applying the requirements 
under section 411(d)(6), as described in Sec. 1.411(d)-4, Q&A-3. 
Therefore, for example, the eligible retirement plan is not required to 
provide, with respect to amounts paid to it in a direct rollover, the 
same optional forms of benefits that were provided under the plan that 
made the direct rollover. The direct rollover requirements of section 
401(a)(31) do not affect the ability of a qualified plan to make an 
elective or nonelective transfer of assets and liabilities to another 
qualified plan in accordance with applicable law (such as section 
414(l)).
    Q-16: Must a direct rollover option be provided for an eligible 
rollover distribution that is in the form of a plan loan offset amount?
    A-16: A plan will not fail to satisfy section 401(a)(31) merely 
because the plan does not permit a distributee to elect a direct 
rollover of an eligible rollover distribution in the form of a plan loan 
offset amount. Section 1.402(c)-2(b), Q&A-9 defines a plan loan offset 
amount, in general, as a distribution that occurs when, under the terms 
governing a plan loan, the participant's accrued benefit is reduced 
(offset) in order to repay the loan. A plan administrator is permitted 
to allow a direct rollover of a participant note for a plan loan to a 
qualified trust described in section 401(a) or a qualified annuity plan 
described in section 403(a). See Sec. 1.402(c)-2, Q&A-9 for examples 
illustrating the rules for plan loan offset amounts that are set forth 
in this Q&A-16. See Sec. 31.3405(c)-1, Q&A-11 of this chapter for 
guidance concerning special withholding rules that apply to a 
distribution in the form of a plan loan offset amount.
    Q-17: Must a direct rollover option be provided for an eligible 
rollover distribution from a qualified plan distributed annuity 
contract?
    A-17: Yes. If any amount to be distributed under a qualified plan 
distributed annuity contract is an eligible rollover distribution (in 
accordance with Sec. 1.402(c)-2), Q&A-10 the annuity contract must 
satisfy section 401(a)(31) in the same manner as a qualified plan under 
section 401(a). Section 1.402(c)-2, Q&A-10 defines a qualified plan 
distributed annuity contract as an annuity contract purchased for a 
participant, and distributed to the participant, by a qualified plan. In 
the case of a qualified plan distributed annuity contract, the payor 
under the contract is treated as the plan administrator. See Sec. 
31.3405(c)-1, Q&A-13 of this chapter concerning the application of 
mandatory 20-percent withholding requirements to distributions from a 
qualified plan distributed annuity contract.
    Q-18: What assumptions may a plan administrator make regarding 
whether a benefit is an eligible rollover distribution?
    A-18: (a) General rule. For purposes of section 401(a)(31), a plan 
administrator may make the assumptions described in paragraphs (b) and 
(c) of this Q&A-18 in determining the amount of a distribution that is 
an eligible rollover distribution for which a direct rollover option 
must be provided. Section 31.3405(c)-1, Q&A-10 of this chapter provides 
assumptions for purposes of complying with section 3405(c). See Sec. 
1.402(c)-2, Q&A-15 concerning the effect of these assumptions for 
purposes of section 402(c).
    (b) $5,000 death benefit. A plan administrator is permitted to 
assume that a distribution from the plan that qualifies for the $5,000 
death benefit exclusion under section 101(b) is the only

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death benefit being paid with respect to a deceased employee that 
qualifies for that exclusion. Thus, to the extent that such a 
distribution would be excludible from gross income based on this 
assumption, the plan administrator is permitted to assume that it is not 
an eligible rollover distribution.
    (c) Determination of designated beneficiary. For the purpose of 
determining the amount of the minimum distribution required to satisfy 
section 401(a)(9)(A) for any calendar year, the plan administrator is 
permitted to assume that there is no designated beneficiary.
    Q-19: When must a qualified plan be amended to comply with section 
401(a)(31)?
    A-19: Even though section 401(a)(31) applies to distributions from 
qualified plans made on or after January 1, 1993, a qualified plan is 
not required to be amended before the last day by which amendments must 
be made to comply with the Tax Reform Act of 1986 and related 
provisions, as permitted in other administrative guidance of general 
applicability, provided that:
    (a) In the interim period between January 1, 1993, and the date on 
which the plan is amended, the plan is operated in accordance with the 
requirements of section 401(a)(31); and
    (b) The amendment applies retroactively to January 1, 1993.

[T.D. 8619, 60 FR 49204, Sept. 22, 1995, as amended by T.D. 8880, 65 FR 
21314, Apr. 21, 2000; 65 FR 34534, May 30, 2000]