Rollovers and Safe Harbor Notices

Minnesota law allows transfers of single, lump-sum benefit payments by relief associations in certain situations. First, the relief association must be a qualified pension plan under the IRS Code, and second, it must be a plan that provides a single payment service pension. If those two conditions are met, then, at the written request of the retiring member, the relief association can transfer the member’s lump sum pension to the member’s individual retirement account (IRA).

In addition, if the two conditions are met, then upon the death of an active member and at the written request of the surviving spouse, the spouse’s survivor benefit may be transferred to the spouse’s IRA.

Relief associations do not have authority to roll over service pensions or survivor benefits to 401(k) retirement plans.

In addition, relief associations are required under the Internal Revenue Code to provide a safe harbor notice to recipients of eligible rollover distributions. A safe harbor notice is a written explanation that describes the direct rollover rules, the mandatory income tax withholding rules for distributions not directly rolled over, the tax treatment of distributions not rolled over, and the circumstances when distributions may be subject to different restrictions and tax consequences after being rolled over.

For additional information regarding safe harbor notice requirements and sample safe harbor explanations, see Internal Revenue Notices 2009-68 and 2014-74.

Language is provided in the OSA’s Sample Bylaw Guides authorizing service pension rollovers to a retiring member’s IRA and survivor benefit rollovers to a surviving spouse’s IRA. The Sample Bylaw Guides are provided in both MS Word and Adobe PDF formats.

Published last in the May 2018 Pension Newsletter