The IRS has issued updated model language for the eligible rollover distribution tax notice. This notice must be provided to participants receiving eligible rollover distributions from qualified plans, 403(b) plans and governmental 457(b) plans. Use of the model notice language, including appropriate modifications to reflect a plan’s specific features, provides a safe harbor for compliance with the Code Section 402(f) notice requirement if the notice is provided to the recipient of an eligible rollover distribution within a ‘reasonable time’ before the distribution is made (generally no more than 180, and no less than 30, days before the distribution date).

The IRS last updated the model notice in 2002. Since then several tax law changes have affected the information contained in the notice, and employers and plan administrators have been required to update the content of the notice to reflect these law changes without guidance from the IRS. The updated model language includes two forms of the notice, one for a distribution from a designated Roth account, and the second for use with a non-Roth distribution. Copies of the model notices are attached to IRS Notice 2009-68, which may be found at http://www.irs.gov/pub/irs-drop/n-09-68.pdf .

While the IRS states that the principal purpose of providing the updated model notices is to simplify the presentation and description of the participant’s options upon receiving an eligible rollover distribution, the model notices include options and information not applicable to every plan and which if included in the notice could result in confusion for participants. For this reason, the model language should be customized to omit information that does not apply to a particular plan. In addition, additional information can be provided in the notice without loss of safe harbor status if the information is not inconsistent with the Code Section 402(f) requirements. Plan sponsors are advised to have legal counsel prepare or review the updated notices to assure the proper model form and content are used.

To retain safe harbor compliance status, plan sponsors should update their existing eligible rollover distribution tax notice using the newly issued model language before January 1, 2010. Use of a notice based on the 2002 model language, appropriately modified to reflect interim statutory changes, will continue to qualify as a safe harbor notice through December 31, 2009.