We have been waiting for definitive information from the IRS on this issue for some time now. The American Benefits Council has now appealed to the IRS to clear this mess up with a well timed letter:
http://www.americanbenefitscouncil.org/documents/402f_notice_abc-cmnts_1…

Their letter makes a good point, ie why should indirect rollovers be treated so differently from direct rollovers regarding treatment of after tax funds? It also makes a point that the tax code language in Sec 402 is flawed and needs to be revisited. The Council’s clients need to know how to issue their 1099R forms and soon because the tracking of basis is a QRP administrator responsibility for QRPs just as it is a taxpayer responsibility for IRAs.