On January 10, 2007, the IRS issued Notice 2007-7, which was followed by a clarification of the Notice (February 13, 2007) due to the numerous questions it created. The notice in essence stated that plans could choose not to allow rollovers to IRAs by non-spouses as enacted in the PPA. If the plan does allow it, then non-spouse beneficiaries who switch from the more restrictive five-year plan payout rule to the life expectancy rule will only apply if the direct rollover from the company plan to the inherited IRA is done by the year-end following the year of death. If the rollover is not done in time, the transfer can still be done later, but the plan rules will apply to the funds even though the funds are already in the inherited IRA. In other words, this becomes a no-stretch IRA.
If that is not confusing enough, Congress could overrule the IRS and require employers to adopt this plan feature.