Automatic Rollover Guidance
Rev. 02/03/05, E-mail Alert 2005-2

New Automatic Rollover Rules May Require Action Now
With the recent issuance of IRS Notice 2005-5, the new automatic rollover requirements that apply to involuntary cash outs of eligible rollover distributions of $1,000 or more go into effect on March 28, 2005. Qualified retirement plans, 403(b) arrangements subject to Title I of ERISA, government-sponsored plans (including 457(b) plans), and church plans, which mandate mandatory distributions, will be required to comply with these new rules. Affected retirement plans must amend their plan documents to incorporate the new rules by the end of the first plan year ending on or after March 28, 2005. For most calendar year plans, the deadline for the amendment will be December 31, 2005; however, certain governmental and church plans have a delayed adoption deadline that will permit adoption during 2006 after approval by their governing bodies. Retirement plans with fiscal years that end on or after March 28th will have to adopt the model amendment sooner than calendar year plans. The IRS has provided a ‘grace’ period that permits cash outs to not be processed pending the establishment of operational procedures needed to implement automatic rollovers. This grace period will end on December 31, 2005. (See Q & A 9 of Notice 2005-5.
The IRS Notice includes a model amendment that may be adopted by those plans that provide for involuntary cash-outs. We are preparing model amendments for adoption by the users of the McKay Hochman Prototypes Plans, Volume Submitter Plans, and other retirement plan documents created by our firm, which will become available shortly.

Q & A 12 of Notice 2005-5 notes that involuntary cash out is not a ‘protected benefit’ and a plan provision authorizing such distributions may be eliminated without violating the IRS anti-cutback prohibitions. Further, plans that do not permit involuntary cash outs will not be required to be amended for the automatic rollover rules. There also is considerable uncertainty at this point that employers will be able to find IRA providers willing to accept automatic rollovers from missing and non-responding former employees. Thus employers whose retirement plans currently permit involuntary cash outs may wish to explore suspending or discontinuing involuntary cash outs after March 27, 2005. In this situation, affected employers may adopt an appropriate plan administrative committee or corporate resolution before March 28 th and pay out pending 2005 cash outs by that date. By taking such actions the plan will preserve all available options. If it is decided subsequently to restore involuntary cash outs, that can be accomplished by adoption of the model amendment.