This is based on the rules that an individual can roll over a portion of his or her retirement plan balance, rather than rolling over the entire balance. According to the rules, if an individual rolls over only a portion of his retirement account balance, the portion that is rolled over is deemed to include the pre-tax amount first. Therefore, if the participant has a balance of $100,000, of which $20,000 is after-tax amounts, and he rolls over only $80,000, the $80,000 is attributed to his pre-tax balance. If the participant elects to roll over only a portion of his balance, the custodian is required to pay the amount elected to be directly rolled over to the IRA custodian or plan to which the person elected to have the amount rolled over. For the amount that the participant elected not to have rolled over, the plan cannot make that amount payable to an IRA or retirement plan.
For more information, see IRS Publication 575.
This question was answered by Denise Appleby