Since the rollover will or has been performed more than 60 days after the distribution was received, the receiving custodian should be recording it in their system specifically as a rollover of an offset distribution after the 60-day period has expired so that the Form 5498 reporting this rollover properly includes the rolled-over amount in box 13a and code "PO" in box 13c. For this to happen, it's apparent that the receiving custodian must be made aware of the fact that this is a rollover of a plan offset distribution and have a specific way to record that in their system. How the custodian needs to be made aware of this depends on that particular custodian's procedures; only the IRA custodian can provide that instruction.
I'm not sure why they would ask you to indicate that it is a "60-day rollover" and you are probably correct to question the instruction that you got. Perhaps they are just using that phrase in place of the proper phrase "indirect rollover." If the IRA custodian is a smaller custodian, say, a bank, it's quite likely that a local branch rep simply isn't adequately trained or experienced to handle less common transactions such as the proper way to handle receipt of a rollover of an offset distribution.
