Governmental Pension Plans – Section 401(a)(9) Regulations and IRS Notice 2009-68

Cheryl Beebe-Snell

By Cheryl Beebe-Snell

Regulations under Section 401(a)(9) have been finalized effective September 8, 2009 for governmental plans. Under these final regulations, a governmental plan will be treated as having complied with the minimum mandatory distribution rules if the plan applies a reasonable and good-faith interpretation of the rules.

Whether or not the plan’s actions constitute a reasonable and good-faith interpretation of the distribution requirements is a question of fact.

If plan administrators and/or trustees are not sure whether their plan’s distribution policies either meet the literal requirements of Section 401(a)(9) or the reasonable and good-faith interpretation of the same, they should consult their legal and tax advisors. Failure to meet the 401(a)(9) requirements may result in penalties to the plan’s participants or adverse consequences to the plan itself.

On another note relating to plan distributions, the IRS recently issued Notice 2009-68 that contain two separate safe harbor explanations that may be provided to plan recipients of eligible rollover distributions. Plan administrators should review the new safe harbor notice explanations to determine whether or not the use of the same would be appropriate under the terms of their plan.

The new safe harbor explanations have been updated to take into account changes in the law. Prior to Notice 2009-68, the most recent safe harbor language was published in Notice 2002-3.