November 12, 2014
Authored by: Kathy Sherby and Stephanie Moll
Just as Mr. Dabney learned in our prior post, Dennis Bohner learned about the Plan Document Rule in Bohner v. Commissioner. Here Bohner participated in the Civil Service Retirement System as a government employee. When he retired, he received correspondence that he could increase the amount of his retirement annuity if he sent the plan administrator $17,832, which he did.
However, since Bohner did not have that cash available in any other account, he withdrew $5,000 from his IRA and borrowed the balance of the funds to make that payment. He then withdrew an additional amount from his IRA to pay back the borrowed funds. Like Dabney, Bohner ignored the Form 1099-R and did not report these withdrawals on his income tax return and treated them as rollovers from his IRA to his qualified plan. The IRS did not agree that these were rollover contributions and assessed a deficiency.
The Civil Service Retirement System is a statutory retirement plan created under 5 U.S.C. §§ 8331-8351, and does not include a provision allowing an employee to make pretax contributions or to rollover funds from an IRA or other qualified plan to the Civil Service Retirement System. All employee contributions are made with after-tax funds, with employer contributions being the only pretax funds in the account.
Even though it is possible to rollover distributions from an IRA to another IRA or a qualified plan, a plan is not required to include that authorization in its plan document.
Since the Plan administrator of the Civil Service Retirement System Plan did not receive the funds as a pretax rollover contribution, Bohner’s withdrawal of funds from his IRA to remit to the Plan administrator to increase his annuity amount did not constitute rollover contributions.
The funds Bohner withdrew from his IRA were subject to income tax in the year of the withdrawal.
The Plan Document controls what the employee can do within the plan. More importantly, just because the Code authorizes certain provisions to be included in a plan or IRA, the plan or IRA does not include any provisions that are not actually included in the plan or IRA governing document.