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GAO-24-107167 1 (2024-05-22)

handle is hein.gao/gaoqgg0001 and id is 1 raw text is: U.S. GOVERNMENT ACCOUNTABILITY OFFICE 441 G St. N.W. Washington, DC 20548 May 22, 2024 Congressional Committees 401(k) Retirement Plan Tax Notices: Federal Actions Can Help Participants Understand Their Distribution Options The Internal Revenue Code (IRC) requires 401(k) plans to provide a 402(f) Special Tax Notice (often referred to as the Rollover Notice or 402(f) Notice) to participants who have separated from their employer and requested a distribution from their plan. The 402(f) Notice communicates information about the tax consequences of the distribution options for their plan savings.1 It is the only disclosure that plans are required to provide to participants who are eligible for a rollover that is specifically about the options for their plan savings and its related tax consequences. To help plans and participants understand and meet their obligations under the IRC, the Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issue regulations and guidance, including rulings and notices. In March 2013, we reported on challenges that workers faced in rolling over their retirement savings from one plan to another after job changes. We noted that the 402(f) Notice requirements do not require plans to inform participants that they can leave their savings in their old plan.2 In January 2024, we found that understanding distribution options remains a challenge for participants, even with Treasury's required notice.3 Indecision about what to do with retirement savings as workers change jobs or uncertainty about how to meet necessary requirements in managing accounts can affect retirement security over the course of a worker's career. The SECURE 2.0 Act of 2022 includes a provision for GAO to analyze the 402(f) Notices provided by retirement plan administrators to plan participants.4 Specifically, this report examines (1) the effectiveness of 402(f) Notices in helping participants understand their distribution options and associated tax consequences, and (2) federal actions that could facilitate better understanding by recipients of their different distribution options and corresponding tax consequences, including spousal rights. 1 26 U.S.C. § 402(f)(1). The 402(f) Notice explains the tax implications of the different distribution options available to separating employees. 26 C.F.R. § 1.402(f)-1. The latest IRS Model 402(f) Notice published in 2020 is posted at https://www.irs.gov/irbl2020-35_IRB#NOT-2020-62. 2 GAO, 401(k) Plans: Labor and IRS Could Improve the Rollover Process for Participants, GAO-13-30 (Washington, D.C.: Mar. 7, 2013). 3 GAO, 401(k) Plans: Additional Federal Actions Would Help Participants Track and Consolidate Their Retirement Savings, GAO-24-103577 (Washington, D.C.: Jan. 18, 2024). 4 Pub. L. No. 117-328, div. T, § 336, 136 Stat. 4459, 5373. The SECURE 2.0 Act of 2022 was enacted as Division T of the Consolidated Appropriations Act, 2023. GAO-24-107167 401(k) Retirement Plan Tax Notices Page 1

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