Transfers, Exchanges And Rollovers

How do I handle direct transfers to funding vehicles not authorized by the plan?

Previously, under IRS Revenue Ruling 90-24, nontaxable direct transfers between 403(b) contracts and custodial accounts were permitted so long as the successor contract or custodial account included distribution restrictions that were the same as or more stringent than the distribution restrictions in the contract or account that was being exchanged. Under the ruling, the contract or account to which the transfer was made did not have to be authorized by the plan.

The final regulations made significant changes in the rules governing how a 403(b) contract or custodial account can be exchanged for another 403(b) annuity contract or custodial account within the same plan or directly transferred to a contract or account under another 403(b) plan.

How do I handle intra-plan transfers among approved vendors?

The regulations do not impose any new restrictions on transfers by participants in a 403(b) plan among vendors that are currently authorized to receive new plan contributions.

How about transfers of existing accumulations to vendors who are not currently authorized to receive new plan contributions?

For transfers after September 24, 2007, Revenue Ruling 90-24 has been repealed and transfers to or from annuity contracts and custodial accounts offered by vendors that are not currently within a 403(b) plan (also referred to as contract exchanges) are only permitted under the final regulations if the unauthorized fund vendor has entered into an agreement with the employer that is sponsoring the 403(b) plan to share information that is required for tax reporting and compliance purposes.

The employer had until January 1, 2009 to establish a written information sharing agreement with the vendor and incorporate the appropriate language into the plan documents.

How about plan-to-plan transfers among 403(b) plans?

Under the final regulations, plan-to-plan transfers are permitted for both current and former employees, provided certain conditions are satisfied:

  • Both the transferring and receiving plans provide for transfers.
  • The participant or beneficiary’s accumulated benefit immediately after the transfer at least equals the accumulated benefit immediately before the transfer.
  • Distribution restrictions after the transfer are at least as stringent as immediately prior to the transfer.

Because neither a contract exchange nor a plan-to-plan transfer meeting the regulatory requirements is treated as a distribution, exchanges and transfers may be made before severance from employment or another triggering event.

How about transfers to/from non-403(b) plans?

The final regulations made it clear that neither a qualified plan nor an eligible governmental 457(b) plan may transfer assets to a 403(b) plan, except by direct rollover. In addition, a 403(b) contract may not be exchanged for an annuity contract that is not a 403(b) contract.

Next: Information Sharing Agreements >

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