Non-Spouse Beneficiary Rollovers
Notwithstanding the provisions of the federal Defense of Marriage Act, I believe that the availability of non-spouse beneficiary rollovers in Section 829 of the Pension Protection Act of 2006 serves as a sort of "unofficial official" recognition of the desire of plan participants to provide beneficiary status to same-sex partners and the need for plans to deal with this issue. What follows are some general observations about how they work.
The rules provide that a non-spouse beneficiary of a participant in a qualified plan may make a direct rollover of the deceased participant's account balance to an inherited IRA (effective for distributions after December 31, 2006). An inherited IRA is an individual retirement account established specifically with reference to the decedent and the decedent's name must be included in the title. So it would be something like "Jane Doe as beneficiary of John Doe." Once the inherited IRA is established, the direct rollover is the ONLY means of moving money from the qualified plan to the IRA. There cannot be a cash distribution and then and rollover contribution within the 60 day window.
The rollovers are exempt from the stranded direct rollover requirements, such as the mandatory 20% withholding on amounts not directly rolled over, and there is no need to issue a 402(f) rollover notice. Generally, the inherited IRA will be required to follow the same distribution rules of the plan from the which the rollover was made. Non-spouse rollover provisions are required for 2008 plan operations however the PPA does not require that a plan amendment be made until the 2009 plan year. It is interesting to note, though, that the plan does not have to be specifically amended to provide for the non-spouse rollover, but it has to be documented (possibly through board resolution) that the option is available.
I think administration of this provision will prove interesting to plan administrators, particularly where there are multiple potential beneficiaries, such as children raised by same-sex partners. The more options participants are given to change and designate beneficiaries, the more likely they are to make mistakes. I think administrators would do well to put in place some extra measure of confirmation from the participant of a non-spouse beneficiary if participants choose that option.
