What limited due diligence do you TPAs out there accept as sufficient to cause you to believe that the rollover $$ are coming from a qualified plan? A recent statement showing sufficient assets in the partcipant's account? A statement actually showing the distribution which is resulting in the rollover? A check which mentions the name of the plan? A signed statement by the Trustee of the plan from which the assets are coming?

That would concern me as it does not necessarily follow from the EE having benefits in another QRP that he has withdrawn them and that such are the source of the indirect rollover.



That appears sufficient.



Yes, particularly if it indicates that the payment is a benefits distribution rather than perhaps loan proceeds or payment for services rendered to the plan.



That ought to do, if specific that the assets have been paid as part of a distribution, specifying amount and date.

Limited is the key work here: we require a statement signed by the trustee of the receiving plan indicating that he or she has determined that it is an appropriate rollover into the plan.

K2 (& others) --

On what basis does the Trustee of the receving plan determine that he/she/it believes the transferring plan is qualified and the assets are truly assets which can be rolled over? What is it that the receving trustee has in-hand to make that good-faith statement?

In other words, what should a receving plan want to see in order to feel comfortable in accepting the $$? Or is the check simply deposited and credited as a rollover without any modicum of due diligence?

I agree with John's analysis of the suggested approaches, but I am told that (i) it is impractical to wait for a statement showing that the distribution has occurred, and (ii) transferring trustees are not particularly responsive to requests to verify the withdrawal & qualified status of the transferring plan. I fear that in the current economy, trustees/plans are likely to quickly accept rollovers from new participants/employees without adequate due diligence just to get the additional $$.

A tax rule gives us a way to think about how much assurance a receiving plan should ask for. The rule tells us that a receiving plan’s administrator must “reasonably conclude” that a proposed contribution is a valid rollover contribution. The rule includes four examples in which the information presented could allow an administrator to “conclude” that it’s “reasonable” to believe that the proposed contribution is a valid rollover contribution. 26 C.F.R. § 1.401(a)(31)-1, Q&A-14. (Please understand that I’m no defender of the rule. But even if the rule makes little sense, it’s the rule we have.)

A plan’s administrator may depart from the procedures described by the examples. But such an administrator should be ready to prove that its departure from that norm was carefully considered and prudent. For example, a pension professional might render written advice that a plan’s different procedures are such that the administrator following them would have a “reasonable” belief that a proposed contribution is a valid rollover contribution. In the absence of such advice, it’s unclear what evidence a plan’s administrator could use to show that its procedure was prudent.

Here’s why both employers and recordkeepers should want written procedures. A plan’s administrator should consider that it can’t be prudent to delegate a discretionary decision to a non-fiduciary. But it might be okay to allow a service provider to perform a task if the steps for doing it are sufficiently defined and non-discretionary. Likewise, a recordkeeper or TPA that prefers to be a non-fiduciary service provider should consider that exercising discretion, even if one doesn’t have authority to do so, can make one a fiduciary. That can mean liability to restore losses and expenses caused by one’s breach, and co-fiduciary liabilities for others’ failings.

Another way to think about the risks of receiving a “rollover” that wasn’t is that those that benefit from accepting a contribution ought to bear the risks of accepting it. For example, an employer might negotiate with its plan’s service provider indemnities against the consequences of accepting a contribution that wasn’t a valid rollover contribution. Except for a contribution that the plan’s administrator instructed a directed trustee to accept, an indemnity seems fair.