[14280]
December 27, 2001
TO: PENSION MEMBERS No. 42-01
PENSION OPERATIONS ADVISORY COMMITTEE No. 79-01
RE: IRS RELEASES REVISED SAFE HARBOR EXPLANATION UNDER CODE SECTION
402(f)
The Internal Revenue Service has issued Notice 2002-3, which contains two “safe harbor
explanations” that plan administrators may provide to recipients of eligible rollover
distributions in order to satisfy section 402(f) of the Internal Revenue Code. One of the
explanations relates to distributions from section 401(a) and 403(a) plans and section 403(b)
arrangements, and the other is designed for use by administrators of governmental 457 plans.
The revisions to the previous version of the safe harbor explanation include detailed
discussions of expanded rollover opportunities resulting from the enactment of the Economic
Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). For example, the explanation
includes new sections on the rollover of after-tax contributions and expands the list of the types
of plans into which distributions may be rolled over. In this regard, the explanation states that
after-tax contributions from a section 401(a) or 403(a) plan may be rolled over “to another such
plan using a direct rollover,” and that after-tax contributions from a section 403(b) arrangement
may be directly rolled over into another section 403(b) arrangement, but after-tax contributions
may not be rolled over to a governmental 457 plan. In addition, the explanation describes the
potential consequences of rolling over certain amounts, such as amounts qualifying for ten-year
averaging and capital gain treatment, into various types of plans.
Notice 2002-3 states that the new safe harbor explanations meet the requirements of
section 402(f) for distributions on or after January 1, 2002, if provided to the recipient of an
eligible rollover distribution within a reasonable period of time before the distribution is made.
According to the notice, the previous version of the safe harbor explanation, which was
contained in Notice 2000-11, will not be considered a safe harbor explanation for distributions
on or after January 1, 2002, because of the changes made by EGTRRA. The notice further states,
however, that no penalty will be imposed for any failure to provide the expanded explanation
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required by section 641(c) of EGTRRA with respect to any distribution made before April 14,
2002, provided that the plan administrator makes a reasonable attempt to comply with the
expanded notice requirement.
Kathy D. Ireland
Associate Counsel
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