Certified Pension Plan Distributions to State Unclaimed Actual Property Funds: New IRS Pointers | Hodgson Russ LLP


One of the ongoing challenges in managing distributions from qualifying retirement plans (e.g. 401 (k) plans) is dealing with missing or unresponsive plan participants. Missing or unresponsive attendees will never be able to claim benefits, or a distribution check may be mailed out and never cashed. While qualifying retirement plans can perform a number of procedural steps to deal with unclaimed benefits or unclaimed checks, there are instances where a plan may provide for unclaimed benefits or unclaimed checks to be withheld from a government unclaimed real estate fund. Overall, getting rid of a government unclaimed real estate fund seems like a relatively unusual strategy for qualified retirement plans, especially active ones. The guidelines available favor other strategies for dealing with unclaimed benefits or unpaid checks. Nevertheless, transfers to state-owned unclaimed real estate funds take place from time to time, which may occur somewhat more frequently in the event of a termination plan.

With this in mind, the IRS recently issued two guidelines relevant to qualifying retirement plan benefits that are paid out to a government unclaimed real estate fund. First, the IRS dealt with withholding tax and reporting requirements in Revenue Ruling 2020-24. The scenario considered in Revenue Ruling 2020-24 included a distribution of $ 900 from a qualifying retirement plan to a state unclaimed real estate fund that did not include Roth or any other after-tax amounts. The key aspects of the IRS decisions in Revenue Ruling 2020-24 are as follows:

  • The Internal Revenue Code Section 3405 contains the federal withholding tax rules on certain distributions from qualifying retirement plans. Because none of the exceptions for treatment as a designated distribution apply in the scenario outlined in Revenue Ruling 2020-24, the IRS concluded that the payment of the benefit to the state unclaimed real estate fund is a designated distribution subject to withholding tax by the Federal is subject to Internal Revenue Code Section 3405.
  • Because the payment has exceeded the reporting threshold of $ 10, the distribution paid to the state unclaimed real estate fund must be reported on a Form 1099-R for the year of the distribution.
  • The Revenue Ruling 2020-24 guidelines include a transitional rule that will not treat an individual as a failure to comply with the withholding tax and reporting requirements described in Revenue Ruling 2020-24 in relation to payments made prior to January 1, 2022. or the date on which it becomes reasonably practical for the individual to meet these requirements.

Second, in Revenue Procedure 2020-46, the IRS exempts from the 60-day requirement to transfer amounts paid to a state unclaimed real estate fund to an IRA or other eligible retirement plan. The relief comes in the form of an update and amendment to Revenue Procedure 2016-47, which provides for a self-certification process (subject to review during the audit) that can be applied by a taxpayer who is authorized to cancel the 60-day rollover requirement asserts in relation to a rollover into an IRA or other eligible retirement plan. Revenue Procedure 2016-47 contains a limited list of acceptable reasons for such self-certification. The 2020-46 Income Procedure changes and replaces the 2016-47 Income Procedure by adding “a distribution to a government unclaimed real estate fund” to the list of allowable reasons for self-certification. Note that self-certification relates only to the reason why the 60-day period was not met, and not whether a distribution is otherwise eligible for renewal. A taxpayer using the self-certification procedures must not have previously been denied a waiver request in relation to a rollover of all or part of the distribution to which the contribution relates, and in general, the rollover contribution must do so as soon as possible after Permissible reasons or reasons for self-certification no longer prevent the taxpayer from extending part or all of the amount distributed. Generally, to accept and report a rollover contribution to an IRA or other eligible pension plan, a plan administrator or IRA trustee can rely on a taxpayer’s self-certification under Revenue Procedure 2020-46 to determine whether the taxpayer meets the terms for a has waived the 60-day rollover requirement unless the plan administrator or IRA trustee has actual knowledge that contradicts self-certification. The 2020-46 revenue procedure will come into effect on October 16, 2020.

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