401(k) Specialist Issue 1 - 2017 - 35

401(k) ROLLOVERS
THE TAX CODE ALREADY CONTAINS VARIOUS LIMITATIONS ON PLAN CONTRIBUTIONS THAT
COULD BE ADJUSTED FROM CURRENT LEVELS FOR THE PURPOSE OF BOTH REDUCING TAX
EXPENDITURES AND RAISING GOVERNMENT REVENUE.
no other retirement plan, will be required
to participate, and their employees will
automatically be enrolled at 3 percent of
pay through the employer's salary-deferral
system (again, unless they opt out).
No employer contributions will be permitted,
primarily due to fear that it would
inadvertently create an ERISA-covered
plan, subjecting employers to the responsibilities
therein. The California program
provides a guaranteed return on employee
contributions, to then be pooled and invested
by state-selected managers.
Implementation of the program was
conditioned on receiving an IRS ruling that
contributions would be pre-tax, as well as
DOL approval that the program is indeed
not subject ERISA. On the same day the
DOL published its final rule, the California
state assembly approved the Secure Choice
program, which Governor Jerry Brown
signed into law in September. There are
currently eight other states that have already
enacted similar legislation.
401(k)-to-IRA Rollovers
The fiduciary rule requires 401(k) advisors
to internally document why a rollover
may (or may not) be in the best interest of
the 401(k) participant. Even if the fiduciary
rule is repealed, rescinded, repurposed,
re-proposed or whatever else, advisors
should have standard procedures to keep the
tort lawyer hounds at bay. They include, by
way of example and are not limited to, the
following checklist:
1. That the rollover has no adverse tax
effects to the advice recipient (e.g.,
that if there is any Roth money, that
the requisite five-year holding period
has been met);
2. That the rollover would provide for
a broader range and better quality of
investment options;
3. That the cost of the IRA is either
comparable to, or not unreasonably
greater than, the cost of the existing
plan, given the additional services that
can be provided;
4. That under a rollover the advisor may
provide better services-for example,
personalized financial advice services,
consultation, initial and ongoing
access to third party money management,
discretionary and nondiscretionary
investment advice and
customized reports;
5. That there is no need for the participant
to receive a loan;
6. If the participant is not a 5 percent
owner of the employer, that the
participant is continuing employment
after the age of 70 ½;
7. There is no employer stock in the
amount to be rolled over that has " net
unrealized appreciation; "
8. There are better estate planning alternatives
with the IRA;
9. That alternatives to the rollover
have been considered;
10. That the creditor protection laws in the
states are either as strong as ERISA, or
no creditor protection is needed;
11. The participant was not born before
January 2, 1936. As in such circumstances,
capital gain treatment and/or
5 or 10 year forward averaging may
be used.
Since 1996, The Wagner Law Group has provided
a practical approach and sophisticated legal
solutions while offering the personalized attention
of a boutique law firm. Our practice areas include:
ERISA Law, Employment Law, Labor and Human
Resources, Employee Benefits, Welfare Benefits,
Privacy & Security, Corporate Law, Tax, Estate
Planning and Administration, Real Estate and Litigation.
Marcia Wagner can be reached at marcia@
wagnerlawgroup.com.
ISSUE 1 2017 | 401kSpecialistmag.com
35
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401(k) Specialist Issue 1 - 2017

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