EXPLANATION OF FORMS RELATING TO PLAN DISTRIBUTIONS



EXPLANATION OF FORMS RELATING TO PLAN DISTRIBUTIONS

The “100” series forms relate to distributions from a defined contribution plan. These sample forms cover the most common distribution transactions a plan administrator will encounter. The forms may require modification depending on specific plan terms.

This Explanation provides information on the use of each form. Footnotes on a form provide additional guidance on form usage. Please note several forms have more than one version. The paragraph explaining the form will provide instructions regarding which version of the form to provide to a participant.

Generally, forms without a “(NoJ&S)” or “(J&S)” prefix are for use with all plans. Forms with a “(NoJ&S)” prefix are for use with a profit sharing plan (including a Code §401(k) plan) under which the employer elected not to apply the joint and survivor annuity requirements. However, if pursuant to a plan, the joint and survivor annuity requirements must apply to a participant (e.g., election of an annuity form of payment or a transfer of assets from a plan subject to the joint and survivor annuity requirements), the “(NoJ&S)” prefix forms are not appropriate for that participant. Forms with a “(J&S)” prefix are for use with all money purchase pension plans, target benefit plans and any profit sharing plan under which the employer elected to apply the joint and survivor annuity requirements.

1. Participant Distribution Notice [Form 102]. This form explains the participant’s election rights regarding his/her distribution. The Plan Administrator must provide this notice and the accompanying distribution package only to a participant whose vested account balance exceeds $5,000 ($1,000, if the plan uses a $1,000 cash-out limit). Form 102B, rather than Form 102, applies if the participant has a Roth deferral account in addition to a non-Roth account. The two Forms 102 (and the two Forms 102B) differ, depending on whether the joint and survivor requirements apply. If the joint and survivor requirements apply, the form explains the participant’s right to receive a joint and survivor annuity, the financial effect of waiving the annuity and the procedure for waiving the annuity. The form refers to the annuity as the “Qualified Annuity Benefit” to avoid confusion for unmarried participants. If the participant wishes to waive the Qualified Annuity Benefit, the participant’s spouse must consent to the waiver. If the participant wishes to name a non-spouse beneficiary, the spouse must consent to the specific non-spouse beneficiary (unless the spouse signs a general consent permitting the participant to change the designated beneficiary without the spouse’s further consent), and the participant should execute a new beneficiary designation (Form 111) to document the spouse’s timely consent. If the joint and survivor requirements do not apply, use the (NoJ&S) version of the form. The Participant Distribution Notice form satisfies the requirement to provide notice within 30 to 180 days before the annuity starting date.[i] In item (1), enter the proposed distribution date. This date serves as the “annuity starting date” for purposes of the notice and consent requirements. In item (2), enter the latest value of the participant’s entire account balance. In (2)(a), specify the vested portion of the account balance and, in (2)(b), specify the nonvested portion. If the participant is 100% vested, enter “$0” in (2)(b). In Form 102B, items (2) and (3) provide the same information regarding the separate non-Roth and Roth accounts. The next item, entitled “Minimum Notice Period,” advises the participant of the right to a minimum of thirty days during which to consent to the distribution, elect the treatment of an eligible rollover distribution, and, if applicable, to waive the Qualified Annuity Benefit. The plan may distribute a participant’s vested account balance during the minimum 30-day notice period for the participant’s consent to a distribution, if the participant affirmatively elects to waive the unexpired period, except that a plan subject to the joint and survivor annuity requirements may not commence distributions earlier than the 8th day after the participant receives this notice. In the last item, entitled “Distribution charge,” check the box indicating whether or not the plan will charge a distribution fee, and if so, enter the amount of the distribution fee. Section 2 (“Benefit payment options”) of this form assumes the employer uses standard distribution options. If the employer’s plan provides modified distribution options, the practitioner may need to modify or delete (a), (b) or (c), or add an option (d). If the participant is entitled to protected optional forms of benefit, the employer also may need to modify Section 2. The notice refers to an enclosed distribution package. The package includes the following forms: Participant Distribution Election (Form 103), Special Tax Notice Regarding Plan Payments (Form 104) and Postponement of Distribution Election (Form 107).

Use Form 102A, in addition to Form 102, if the plan is a profit sharing plan that is not subject to the J&S rules, but the participant’s distribution includes assets previously transferred from another plan that mandatorily are subject to the joint and survivor requirements. Under those circumstances, provide the participant Form 102A and 102 (J&S) or 102 (NoJ&S), completed with respect to each portion of the account.

2. Participant Distribution Election [Form 103]. The participant uses this form to elect whether to (1) make a direct rollover contribution of his/her benefits to an eligible retirement plan (an IRA, a qualified plan, a 403(a) plan, a 403(b) plan or an eligible governmental 457 plan), or (2) commence distribution of his/her benefits. If the participant elects to make a direct rollover contribution, the trustee should use the Direct Rollover Notice form (Form 121) whether the trustee is distributing (by check, wire transfer or other acceptable method) directly to the recipient plan or is providing a check negotiable only by the recipient plan. If the participant elects to commence distribution of his/her benefits and his/her vested account balance exceeds $5,000 ($1,000, if the plan uses a $1,000 cash-out limit), the participant also uses Form 103 to elect the form of distribution. Form 103 has five versions:

103A Vested Account Balance does not exceed $5,000. If the vested account balance does not exceed $5,000, the distribution is involuntary. However, the participant must have a choice between direct rollover (to avoid withholding) or lump sum. For a vested account balance greater than $500, the participant may elect to split the distribution between direct rollover and lump sum. If the participant does not elect either to receive or to roll over the distribution, the plan must roll over to an IRA a vested account balance that exceeds $1,000. Form 103A provides for automatic rollover as the default, even if the vested account balance is $1,000 or less. If the plan instead provides for distribution of vested account balances of $1,000 or less, the practitioner accordingly should modify the note under line 1.c (and the form title). All plans use this form, regardless of whether the joint and survivor requirements apply.

103B (J&S) Vested Account Balance exceeds $5,000 – J&S. This version includes the “Qualified Annuity Benefit” form to comply with the joint and survivor requirements. If the participant waives the Qualified Annuity Benefit, the spouse must consent to the election. The participant must complete Form 106 to elect installments. If the plan also permits other annuity distribution options, modify the form to refer to “installment or annuity payments” in selection (b)(4).

103B (NoJ&S) Vested Account Balance exceeds $5,000 – No J&S. This version limits the choices among direct rollover, lump sum and installments. If the participant wishes installments, he must complete Form 106. This approach simplifies the form, recognizing few participants elect the installment method.

103C Vested Account Balance does not exceed $1,000 – default is lump sum distribution of $1,000 or less. If the plan establishes a $1,000 cash-out limit in order to avoid the application of the automatic rollover rules, and provides for a lump sum distribution of $1,000 or less, use this form for a vested account balance of $1,000 or less. If the vested account balance exceeds $1,000 but not $5,000, use Form 103D. A plan reducing the cash-out limit to $1,000 could provide for automatic rollover as the default for a vested account balance of $1,000 or less, the plan usually will provide for default distribution, rather than default rollover, for a vested account balance of $1,000 or less, since the election to set the cash-out limit at $1,000 rather than $5,000 indicates the employer’s wish to avoid the application of the automatic rollover rules.

103D Vested Account Balance exceeds $1,000 but does not exceed $5,000 – lump sum distribution with Participant consent. If the plan establishes a $1,000 cash-out limit in order to avoid the application of the automatic rollover, use this form for a vested account balance between $1,000 and $5,000. The practitioner should modify this form if the plan provides for a distribution other than in lump sum to a Participant with a vested account balance between $1,000 and $5,000.

Note that while lowering the cash-out threshold from $5,000 to $1,000 avoids the application of the automatic rollover rules, this decision may increase the number of plan participants for Form 5500 (and required plan audit) purposes, and may increase future administrative expenses because of the potential difficulty of locating a participant who terminated employment many years before the time a required distribution to the participant is necessary.

The Plan Administrator may treat a participant’s affirmative election before the end of the 30-day notice period as a waiver of the remaining notice period and may make distribution (by payment or direct rollover, as elected) before the notice period ends. If the joint and survivor requirements apply to the plan, and the vested account balance exceeds $5,000, distribution following the participant’s affirmative election may not begin earlier than the later of the “annuity starting date” or the eighth day after the plan provides the Participant Distribution Notice (Form 102) to the participant. Until the “later date,” the participant may revoke a waiver of the Qualified Annuity Benefit. The “annuity starting date” is the actual distribution date if the participant elects a lump sum distribution. If the participant elects to receive installment payments or an annuity, the annuity starting date may be before the date the participant receives the first installment or the first annuity payment. The plan may not make a distribution before the end of the 30-day period unless the participant makes an affirmative election.

3. Special Tax Notice Regarding Plan Payments [Form 104]. This notice contains information regarding the federal income tax options for the plan distributions. This notice explains the rollover options (including the direct rollover), federal income tax withholding, and the special tax treatment of lump sum distributions. See Code §402(f). The Plan Administrator must provide this notice to the distributee within 30 to 180 days before the distribution date. If the participant also receives the Participant Distribution Notice form, the Plan Administrator should provide the special tax notice at the same time. This form contains 6 versions: the IRS sample notice for a plan making payments not from a designated Roth account (Form 104A), the IRS sample notice for a plan making payments from a designated Roth account (Form 104F), covering all types of distributees, and four alternative notices created by SunGard. Each alternative notice is for a particular type of distributee: one for the participant, one for a surviving spouse, one for a QDRO alternate payee, and one for a non-spouse beneficiary. We suggest providing an employer only the notice designed for the participant (Form 104B), advising the employer a different notice applies to any distribution to: (1) a surviving spouse; (2) a QDRO alternate payee; or (3) a non-spouse beneficiary. Form 104 explains the mandatory 20% withholding tax on an eligible rollover distribution and the participant’s right to elect a direct rollover of the distribution to avoid the withholding. If the participant elects to receive a distribution other than an eligible rollover distribution, the Plan Administrator must provide the participant a Revenue Service Form W-4P no later than the date of the first payment. Form W-4P allows the participant to elect out of withholding for a distribution other than an eligible rollover distribution. We recommend providing Form W-4P only after the participant elects a distribution that is not an eligible rollover distribution. This approach will avoid confusion between the use of Form W-4P and the 20% withholding. If a distribution in its entirety is not eligible for rollover (e.g., a hardship distribution or a required minimum distribution), it is not necessary to provide the Special Tax Notice.

4. Notice to Trustee (Distribution Instructions) [Form 105]. Generally, the plan empowers the Plan Administrator with the responsibility to direct the form and timing of benefits. Form 105 provides distribution direction from the Plan Administrator to the trustee. The Plan Administrator will check Box (1) if the participant’s vested account balance is $1,000 or less, unless the participant elected a direct rollover, or the plan provides for a default rollover of all account balances subject to an involuntary cash-out for which the participant has not made a distribution election. If the participant’s vested account balance exceeds $5,000, the Plan Administrator usually will check Box (2). The Plan Administrator will check Box (3) to roll over the participant’s Vested Account Balance to an automatic rollover IRA. Box (4) would apply if the participant has failed to make an election and the Plan Administrator is making a mandatory distribution.

5. Installment/Required Minimum Distribution Election [Form 106]. If the participant elects an installment form of distribution, the Plan Administrator also must provide Form 106 to the participant. If the installments are required minimum distributions, the Plan Administrator instead should provide Form 106A to the participant. The participant uses this form to elect an installment period, the frequency of the installments (monthly, quarterly or annually) and the medium of payment (i.e., directly from the trust or by purchase of term certain annuity contract). If the plan also permits other annuity distribution options, the practitioner may modify this form to incorporate the other annuity options.

6. Postponement of Distribution Election [Form 107]. If the participant’s vested account balance exceeds $5,000, the participant has the right to postpone distribution under the plan at least until normal retirement age (or age 62, if later). The practitioner will need to complete the blank lines in the “Note” to conform to the distribution election options provided in the plan. For example, assume the employer’s plan permits election for distribution as soon as administratively practicable in the first plan year following the participant’s separation from service. An employee who separates from service during the 2010 plan year may elect to commence distribution as soon as the plan completes allocations for the 2010 plan year. If the plan determines it will complete allocations by March 1, 2011, the plan should provide the distribution package within 30 to 180 days prior to March 1, 2011. The distribution date designated on the Participant Distribution Notice (Form 102) should be March 1, 2011. The “Note” in the Postponement of Distribution Election would read as follows: [Note: For purposes of the blank space after (a) or (b), insert the distribution date you are electing.] If the participant does not wish to receive distribution as of the distribution date specified in the Participant Distribution Notice form, he must return this postponement election to the Plan Administrator. The postponement election form is the same for all plans. If the participant elects to postpone distributions, the plan should obtain the participant’s executed Beneficiary Designation (Form 111).

7. In-Service Withdrawal Election Form [Form 108]. A participant uses this form to elect an “in-service” withdrawal from the plan. If joint and survivor requirements apply to the participant, the Form 108 (J&S) includes an explanation of the joint and survivor annuity and the effect the withdrawal election has on subsequent distributions. If the joint and survivor requirements do not apply, use the (No J&S) version of the form. This form applies to an in-service withdrawal election other than a hardship distribution. A hardship distribution is not an eligible rollover distribution.

8. Hardship Withdrawal Election Form [Forms 109]. This form permits a hardship distribution that satisfies the 401(k) safe harbor distribution rules, and therefore limits the reasons for a hardship distribution to the “deemed hardship” criteria of the 401(k) regulations. If the hardship distribution is from a 401(k) plan, use Form 321. Like Form 108, Form 109 has two alternatives, depending on whether the joint and survivor requirements apply to the participant. A hardship distribution is not an eligible rollover distribution. Therefore, the plan should not provide the participant a Special Tax Notice in connection with a hardship withdrawal.

9. Instructions for Designating or Changing Beneficiary [Form 110]. This form provides instructions to assist the participant in completing the Beneficiary Designation (Form 111).

10. Beneficiary Designation [Form 111 (No J&S)]. Use this form if the joint and survivor annuity requirements do not apply to the participant. The beneficiary designation of a married participant is not valid unless the participant’s spouse consents to the beneficiary designation. However, spousal consent is not necessary if the participant’s spouse is the sole primary beneficiary. The plan should provide this form when an employee becomes a plan participant. The plan will not need to obtain a new executed Beneficiary Designation form when the participant is eligible for a distribution unless the participant wants to change the beneficiary (with spousal consent). A participant may complete Form 111A or Form 111B if a trust is a designated beneficiary.

11. Beneficiary Designation [Form 111 (J&S)]. Use this form if the joint and survivor annuity requirements apply to the participant. The effect of the spouse’s consent on the reverse side of the form will depend on whether the participant dies prior to the annuity starting date or after the annuity starting date. If the participant dies prior to the annuity starting date, the surviving spouse will receive a preretirement survivor annuity unless, prior to the participant’s death, the participant and the spouse waived that death benefit. In the context of the preretirement survivor annuity, the spouse’s consent on the reverse side of the form impacts solely the validity of the waiver of that preretirement survivor annuity. If there is no consent, the beneficiary designation is still valid, but the plan satisfies the spouse’s death benefit interest first with the preretirement survivor annuity. Accordingly, if the spouse’s death benefit interest under the beneficiary

designation is 50% or less, and either the participant did not waive the preretirement survivor annuity or the waiver is invalid because the spouse did not consent to the beneficiary designation, the spouse receives the preretirement survivor annuity and the other named primary beneficiaries receive the balance of the deceased participant’s vested account balance. In the context of the joint and survivor annuity, where the participant does not die before the annuity starting date, the beneficiary designation would not have any practical effect in the absence of spousal consent, because the surviving spouse is the sole beneficiary under the joint and survivor annuity form of payment. Unless the participant would like to change the beneficiary (with spousal consent), the plan will not need to obtain a new executed Beneficiary Designation form from the participant if the plan is distributing the participant’s entire vested account balance. However, if the participant selects a qualified annuity benefit or installment payments, the plan will need to obtain a new executed Beneficiary Designation form from the participant. A participant may complete Form 111A or 111B if a trust is a designated beneficiary.

12. Preretirement Survivor Annuity Explanation [Form 112]. If the joint and survivor annuity requirements apply to the participant, the Plan Administrator, within the notice period described in the plan, must provide this memorandum to each married participant.[ii] This memorandum explains the spouse’s right to receive the preretirement survivor annuity, and the financial effect of waiving the annuity and the procedure for waiving the annuity.

13. Waiver of Preretirement Survivor Annuity [Form 113]. The participant uses this form to waive the preretirement survivor annuity. The waiver is not valid unless the participant’s spouse consents to the waiver. A waiver of a preretirement survivor annuity is not valid unless the spouse also consents to the Beneficiary Designation form or unless the spouse is the sole primary beneficiary.

14. Surviving Spouse Distribution Election [Form 114]. This form has two versions. If the plan is not subject to the joint and survivor annuity requirements, or if the participant and spouse waived the preretirement annuity, the surviving spouse uses the (No J&S) version of the form. This form permits the surviving spouse to choose among direct rollover, lump sum and installments. If the plan is subject to the joint and survivor annuity requirements and the participant and spouse did not waive the preretirement survivor annuity prior to the participant’s death, the surviving spouse uses the (J&S) version of the form. This form permits the surviving spouse to elect (1) the form of distribution, including a preretirement survivor annuity, or (2) to make a direct rollover contribution of the death benefit to an IRA. This form assumes the plan authorizes the surviving spouse to elect an optional form of distribution other than the preretirement survivor annuity. If the surviving spouse elects an installment form of distribution, the spouse must complete Form 106, Required Minimum Distribution Election.

15. Non-Spouse Beneficiary Distribution Election [Form 115]. If the death benefit distributable to the beneficiary exceeds $5,000, the beneficiary may use this form to elect the form of distribution. If the beneficiary elects an installment form of distribution, he/she must complete Form 106A. If the plan provides different benefit payment options, the employer might expand the form to include those other options. The plan may permit the participant to use the beneficiary designation to limit the beneficiary’s distribution options or to mandate a particular payment schedule. If the participant has provided for the beneficiary’s payment schedule, the plan would not provide Form 115 to the beneficiary. The plan also should provide Form 104E, the Special Tax Notice for the non-spouse beneficiary.

16. Client Memorandum [Form 116]. The practitioner may include this memorandum when providing a set of distribution forms to an employer. The memorandum provides an explanation with respect to the most commonly used distribution forms.

17. Elective Transfer [Form 117]. This form enables a participant to make an elective transfer. The form assumes the participant also has received a distribution package, explaining his/her distribution rights. Use the (NoJ&S) version of the form, if the joint and survivor annuity requirements do not apply to the participant, and use the (J&S) version if these requirements do apply. The form includes a spousal consent paragraph. The trustee of the transferor plan and the trustee of the transferee plan may need to file Form 5310-A, reporting any direct transfer of plan assets. See the Instructions to Form 5310-A for those plans subject to this filing requirement.

18. Trustee Direct Rollover Notice [Form 121]. The trustee may use this form to remit a direct rollover to the eligible retirement plan designated by the participant.

19. Rollover Contribution [Form 122]. The participant should provide this form with any rollover contribution which is not a direct rollover. A qualified plan should require this form or a similar representation when accepting a rollover from a participant.

20. Plan Administrator’s Statement Regarding Distributing Plan’s Qualified Status [Form 123]. This form may accompany either a direct rollover transmittal (Form 121) or a participant’s rollover contribution transmittal requesting a rollover contribution to a new plan (Form 122). The form provides assurance to the receiving plan that it is not receiving an invalid rollover.

21. Recipient Plan’s Statement on Acceptance of Direct Rollover [Form 124]. This Form permits a distributing plan to assure that the receiving plan is an eligible retirement plan.

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[i] See Treas. Reg. §§1.411(a)-11(c)(2)(ii), 1.411(a)-11T(c)(2), 1.417(e)-1(b)(3) and 1.417(e)-1T(b)(3).

[ii] See Code §417(e)(3)(B)(ii).

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