Jump to content

401(k) Service Credit Purchase


Guest Moreno
 Share

Recommended Posts

Is anyone aware whether 401(k) plan assets can be used to purchase DB plan service credits? I know that this is permissible for other 401(a) plans, but wasn't sure whether there was a particular restriction with respect to 401(k) plans.

Link to comment
Share on other sites

I am intrigued by your statement "I know that this is permissable for other 401(a) plans.."

It is my understanding that it is not permissable for the money to come from any qualified plan. In the past, it must be after-tax money from the participant. Please explain where you are getting your information.

Note: EGTRRA only changed it to make it allowable from 403(B) and 457 plans.

Link to comment
Share on other sites

My understanding is that this is expressly permitted under Code section 415(n). I realize that the EGTRRA change only extended the current permissibility to 457 & 403(B) plans, but I thought that would permit these types of credit purchases on the same basis.

Link to comment
Share on other sites

  • 2 months later...

Section 415(n) by its terms deals only with after-tax employee contributions to purchase service credit under a defined benefit plan. However, direct transfers from one 401(a) (including 401(k)) plan to another for any purpose have always been allowed, if both the transferring and receiving plan allow such transfers. They are rare in nongovernmental plans, mostly because the plan must preserve all of the rights protected by Code section 411(d) (including, for example, the right to receive the accrued benefit as a defined contribution account) with respect to the transferred money. However, because governmental plans are not subject to Code section 411, they can more readily provide for transfers.

The real limitation on this practice, clearly, is that state and local governments that do not already have 401(k) plans are not allowed to adopt new ones. That is why the opportunity to transfer money from 403(B) or 457(B) plans, rather than just qualified plans, to purchase service under a qualified defined benefit plan, will be so important.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...