Pre-Released Final Regs Address Qualified Plan Loan Offsets

Pre-Released Final Regs Address Qualified Plan Loan Offsets

Internal Revenue Service

The IRS has issued a pre-released version of final regulations (T.D. 9937) regarding amendments to section 402(c) made by the Tax Cuts and Jobs Act to provide an extended rollover period for a qualified plan loan offset (QPLO). The final version of the regs will be posted on the Federal Register website at a later date and will incorporate any changes made during the government’s review process. The final regs adopt proposed regs (<a href="/lr/resolve//2cvk8">REG-116475-19</a>) issued in August 2020, with one change regarding the applicability date. The sole commentator stated that the bright-line 12-month rule in the proposed regs is a helpful approach in determining whether a plan loan offset amount is a QPLO amount but expressed concern about the lack of procedures to track a terminated employee’s date of severance or the one-year anniversary of that date. Treasury and the IRS considered an alternative bright-line rule suggested by the commentator but have retained the 12-month rule in the final regs. However, responding to the commentator’s suggestion to delay the final regs’ effective date, they have agreed that additional time to implement the rules in new reg. section 1.402(c)-3 for a QPLO is appropriate. As a result, under the revised applicability date, the final regs apply to plan loan offset amounts, including QPLO amounts, treated as distributed after December 31, 2020. Thus, for example, the rules in reg. section 1.402(c)-3 will first apply to a 2021 Form 1099-R required to be filed and furnished in 2022. According to the preamble, the delayed applicability date will give plan administrators and recordkeepers additional time to program systems and establish procedures for obtaining the exact date of severance from employment of a plan participant and tracking the one-year anniversary of that date. The applicability date in the final regs is also revised to provide that taxpayers (including a filer of a Form 1099-R) may apply the regs for plan loan offset amounts, including QPLO amounts, treated as distributed after August 19, 2020, which is the date the proposed regs were published.

T.D. 9937, which was posted on the Federal Register website on January 5, 2021, is the <a href="/lr/resolve//2dcxq">official version</a> of the final regs.

The IRS has issued a pre-released version of final regulations (T.D. 9937) regarding amendments to section 402(c) made by the Tax Cuts and Jobs Act to provide an extended rollover period for a qualified plan loan offset.

The IRS has issued a pre-released version of final regulations (T.D. 9937) regarding amendments to section 402(c) made by the Tax Cuts and Jobs Act to provide an extended rollover period for a qualified plan loan offset (QPLO). The final version of the regs will be posted on the Federal Register website at a later date and will incorporate any changes made during the government’s review process. The final regs adopt proposed regs (REG-116475-19) issued in August 2020, with one change regarding the applicability date. The sole commentator stated that the bright-line 12-month rule in the proposed regs is a helpful approach in determining whether a plan loan offset amount is a QPLO amount but expressed concern about the lack of procedures to track a terminated employee’s date of severance or the one-year anniversary of that date. Treasury and the IRS considered an alternative bright-line rule suggested by the commentator but have retained the 12-month rule in the final regs. However, responding to the commentator’s suggestion to delay the final regs’ effective date, they have agreed that additional time to implement the rules in new reg. section 1.402(c)-3 for a QPLO is appropriate. As a result, under the revised applicability date, the final regs apply to plan loan offset amounts, including QPLO amounts, treated as distributed after December 31, 2020. Thus, for example, the rules in reg. section 1.402(c)-3 will first apply to a 2021 Form 1099-R required to be filed and furnished in 2022. According to the preamble, the delayed applicability date will give plan administrators and recordkeepers additional time to program systems and establish procedures for obtaining the exact date of severance from employment of a plan participant and tracking the one-year anniversary of that date. The applicability date in the final regs is also revised to provide that taxpayers (including a filer of a Form 1099-R) may apply the regs for plan loan offset amounts, including QPLO amounts, treated as distributed after August 19, 2020, which is the date the proposed regs were published.

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Pre-Released Final Regs Address Qualified Plan Loan Offsets