Pension & Benefits News IRS issues final regs on extension of rollover period for qualified plan loan offsets
News
Thursday, January 14, 2021

IRS issues final regs on extension of rollover period for qualified plan loan offsets

By Pension and Benefits Editorial Staff

The IRS has issued final regulations relating to amendments made by the Tax Cuts and Jobs Act (TCJA, P.L. 115-97) extending the rollover period for a qualified plan loan offset (QPLO). The final regulations adopt the proposed regulations without change except the applicability date is pushed back to plan loan offset amounts treated as distributed on or after January 1, 2021. Taxpayers may choose to apply the final regulations, however, with respect to plan loan offset amounts treated as distributed on or after August 20, 2020.

Plan loan offset amounts. A distribution of a plan loan offset amount occurs when the employee’s accrued benefit is reduced (offset) in order to repay an outstanding plan loan. This may occur when, for example, the terms governing a plan loan require that, in the event of an employee’s termination of employment or request for a distribution, the loan is to be repaid immediately or treated as in default. A plan loan offset may also occur when the loan is canceled, accelerated, or treated as if it is in default (for example, if the plan treats a loan as in default upon an employee’s termination of employment or within a specified period thereafter). A plan loan offset cannot occur prior to a distributable event.

TCJA amended Code Sec. 402(c)(3) to provide an extended rollover deadline for QPLO amounts. Any portion of a QPLO amount (up to the entire QPLO amount) may be rolled over into an eligible retirement plan by the individual’s tax filing due date (including extensions) for the tax year in which the offset occurs. A QPLO amount is a plan loan offset amount treated as distributed from a qualified employer plan to an employee or beneficiary solely by reason of: (1) the termination of the qualified employer plan, or (2) the failure to meet the repayment terms of the loan from the plan because of the severance from employment of the employee.

The IRS published proposed regulations on August 20, 2020, confirming that a QPLO is a type of plan loan offset. Thus, the IRS explained that most of the general rules relating to plan loan offset amounts apply to QPLO amounts. For example, the rule that a plan loan offset amount is an eligible rollover distribution applies to a QPLO amount.

In addition to setting out the basic rules, the proposed regulations provide that a plan loan offset amount is treated as distributed from a qualified employer plan to an employee or beneficiary solely by reason of the failure to meet the plan loan repayment terms because of severance from employment if the plan loan offset: (1) relates to a failure to meet the repayment terms of the plan loan, and (2) occurs within the period beginning on the date of the employee’s severance from employment and ending on the one-year anniversary of that date. The proposed application date is for plan loan offset amounts treated as distributed on or after the date of publication of final regulations.

Revised applicability date. The final regulations adopt the proposed regulations with only one change. Because recordkeepers may not currently have procedures to track a terminated employee’s date of severance or the one-year anniversary of that date, the applicability date is pushed back to plan loan offset amounts (including QPLO amounts) treated as distributed on or after January 1, 2021. Thus, for example, the final rules will first apply to 2021 Form 1099-Rs required to be filed and furnished in 2022 (more than one year after the date of publication of the final regulations).

In addition, taxpayers (including a filer of a Form 1099-R) may apply these regulations with respect to plan loan offset amounts (including QPLO amounts) treated as distributed on or after August 20, 2020, which is the date of the publication of the proposed regulations.

Source: T.D. 9937.

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More