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Rollover Rules, not a Revenue Ruling 90-24 Transfer


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I have long taken the view that the triggering events enumerated in sections 403(B)(7)(A)ii and 403(b)11 have NO application to rollover treatment but rather list the earliest date upon which a participant may make a TAXABLE distribution. Apparently I am not alone. In fact, I am in very sound company! Following is an exact quote from "Tax Focus/September 16, 1992". This is a publication of "Standard Federal Tax Reports" published and researched by "CCH" the topical law publishers. Here is the quotation:

..."NEW ROLLOVER RULES:

By eliminating the key requirements that currently exist as a condition for rollover treatment, Congress has taken significant steps to make it easier for individuals to keep their retirement assets in a retirement vehicle. Specifically, the Unemployment Compensation Amendments (UCA) of 1992 eliminated the distinctions between total and partial distributions, the mandatory triggering events, and the one-year distribution requirement for total distributions.

After December 31, 1992, any portion or all of a distribution from a qualified plan or tax sheltered annuity plan (other than a minimum distribution, generally required to begin after age 70.5,) can be rolled over tax-free to another qualified plan, tax sheltered annuity, or IRA with only the following conditions:

(1) it must be rolled over in 60 days, and

(2) it cannot be one of a series of substantially equal periodic payments (not less frequently than annually) made (i) over the life or joint life expectancies of the participant and his beneficiary or (ii) over a specified period of ten years or more.

In short, with the exception of required distributions, nonannuity distributions generally may be rolled over, regardless of the amount or reason for the distribution."

COMMENTARY:

The eliminated mandatory triggering events referred to in the first paragraph can be found under section 403(B)8 prior to January 1, 1993. CCH recognized, along with other practitioners, that effective January 1, 1993 these mandatory triggering events for rollover purposes was repealed. Thus, it is wrong to apply the triggering events under 403(B)(7)(A)ii and 403(b)11 to eligibility for rollover treatment.

Peace,

Joel L. Frank

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Hey, I'm convinced--I just wish IRS didn't seem to be having such trouble with this. :(

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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.

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Okay, I got a bit tangled up in terminology here. What I meant was just that a direct transfer between 403(B) plans, or from a 403(B) plan to a defined benefit plan to purchase service credit, should be allowed, even when there has been no distributable event. This has, apparently, been a point of controversy among those drafting the regulations dealing with transfers to purchase service credit.

Because a rollover requires a distribution, it can occur only when a distribution is otherwise permissible.

I'll leave it to Joel as to whether this was what he meant. ;)

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.

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Does anyone find it a little scary that there are two people who spend New Year's Day discussing employee benefits? ;)

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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.

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  • 3 weeks later...

The devil is surely in the detail. Carol, in my humble opinion the reason the IRS is having so much trouble with this is the fact that effective in 2002 the law allows a 403(B) "rollover" contribution to a 401(a) Plan. The only reason to effectuate such a rollover distribution is for the purchase of prior service credit. This is done prior to retirement and while in-active status. But the IRS has taken the position that a triggering event under 403(B)(7) and (B)(11) must be satisfied before a distribution and, thus, a rollover can take place. This is hardly the case with the alternative method of purchasing prior service---cut a personal check or sign up for payroll deductions.

If the Service rules, as it should, that the triggering events of 403(B)(7) and (B)(11) do not apply to rollovers to a 401(a) plan then it will have to take the same position when it comes to rollovers from 403(B) to another 403(B) or an IRA. This is the position that the CCH as well as other practitioners took way back in 1992 when the UCA of 1992 eliminated the specified distribution triggering events for rollover distributions under 403(B)(8).

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Going in a slightly different direction, since one cannot merge a 403(B) [ERISA] Plan into a 401(k) plan, how can the employer terminate the 403(B)? It's too costly to maintain both.

Does there have to be a distributable event to pay out the participants or will the fact of termination be sufficient?

It's the employer's hope they can terminate and that most of the participants will elect a plan to plan transfer to the 401(k).

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Joel, there were actually two different provisions in EGTRRA relating to moving money from a 403(B) or 457(B) plan to a qualified plan. One allowed rollovers from a 403(B) or governmental 457(B) plan to a 401(a) plan for any purpose. Another allowed direct transfers from a 403(B) or governmental 457(B) plan to a defined benefit plan for the purpose of purchasing service credit. Thus, the transfer right should exist even in-service--otherwise, it would be meaningless to supply two different rules, one more limited in scope than the other.

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.

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ljr, we've actually discussed this issue before on this board. You might want to click on this link to see a thread discussing the problems of terminating a 403(b) plan:

http://benefitslink.com/boards/index.php?showtopic=2347

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.

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