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457 Transfers


Guest MMorgan
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Guest MMorgan

We have established a 401(k) for a new client. The client phoned and said they have a frozen 457 plan. They would like to know if the participants can transfer the funds to the 401(k) plan? Any other options for the client?

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Guest Kathleen Meagher

457 accounts can't be transferred or rolled over to a 401(k) or other tax-qualified plan.

Because this client is establishing a new 401(k) plan,I assume that it is a non-profit employer and not a government agency. I'd be leery about that "frozen" 457 plan. This may be one of the unfortunate non-profits who were advised they could establish 457 deferral plans for rank-and-file employees. In fact, because of the ERISA trust requirement, the only kind of 457 plan a non-profit can establish is one that benefits a "top-hat" group of management or highly compensated employees.

If this is a frozen "bad" 457 that violates ERISA, the best thing to do is to get rid of it and pay everybody out. That's painful, beause the employees will be taxable, but it's sitting there as a tax and ERISA liability and it could cause problems if the client is audited.

If it's a frozen top-hat 457 plan, there's no violation. I think all they can do is let it sit there and gradually waste away as people leave and get distributions.

[This message has been edited by Kathleen Meagher (edited 08-20-98).]

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Guest CVCalhoun

Kathleen is right--unless this is a governmental client which has had a 401(k) plan before (the only kind of governmental client which can establish a new 401(k) plan), having a frozen 457 plan for rank and file employees is a problem. Moreover, even if both the 401(k) plan and the 457 plan are permissible, money cannot be transferred from one to the other. You can click here for a description of legislation which would change this result, but prospects for the legislation are uncertain.

[This message has been edited by CVCalhoun (edited 03-07-2000).]

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