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In service distributions from 403(b)'s : yes or no?


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An active participant in a 403b is wanting to take out the full value of his account. He is not terminated or 59.5. The current plan document became effective 1.1.09. The plans SPD states that distributions of elective deferrals can occur at age 59.5, hardship or disability and that employer contribution accounts invested in annuity contracts can occur at any stated age, hardship or disability or other stated event, however it has the wording "you should consult with the Administrator to see if the plan actually permits all of these distributions and what conditions may apply to the distributions". The participant was told that in service distributions can not occur. The participant then provided a provision from the original annuity mass mutual annuity contract that stated the "contract owner may, upon written request, make a total or partial withdrawal of the contract value".

Question is, would the plan doc now prevail over the provisions of the old annuity contract? Would they have to amend the plan to allow for inservice dist at any time to mirror the original contract?

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Question is, would the plan doc now prevail over the provisions of the old annuity contract?

It depends on what the 403b contract between the vendor and EE provides, and whether the vendor and EE agreed to subjugate that 403b contract to the ER's 1.1.09 403b plan.

Would they have to amend the plan to allow for inservice dist at any time to mirror the original contract?

'have to amend'? If the vendor and EE agreed to subjugate the 403b contract to the ER's 1.1.09 403b plan, the vendor and EE essentially amended out of the 403b contract provisions, like in-service withdrawals, that are not consistent with the ER's 1.1.09 403b plan. The ER may, but would not have to, amend its 1.1.09 403b plan to allow in-service withdrawals.

Can someone explain the reasoning why employee deferrals are considered "restricted accounts" and in service distributions can occur from employer contributions at any time?

I think the rationale is generally that all tax-qualified retirement savings are ineligible for in-service distributions before retirement age. To make sure they are there and available in retirement, when the EE is no longer working (presumably). An exception was given to profit sharing contributions, since they are a sharing of the ER's profits as much as retirement savings.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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The original indivudual annuity contract has a withdrawal provision that states "during the accumulation peroid, the contract owner may, upon written request, make a total or partial withdrawal of the value"

The plan document states that "the Vendor may make Plan distributions on any administratively practicable date during the Plan Year, consistent with the Employer's elections in its Adoption Agreement OR in the Funding Vehicle Documentation."

However, the document then states under IN Service Dist. "The Employer in its AA must elect the distribution election rights, if any, a Participant has prior to his Severance from Employment". Well, if you have Indiviudal accounts, you can not make elections in the AA re: in service.

I am of the opinion the contract governs here if the provisions are in the contract. Am I thinking straight?

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The plan document states that "the Vendor may make Plan distributions on any administratively practicable date during the Plan Year, consistent with the Employer's elections in its Adoption Agreement OR in the Funding Vehicle Documentation."

Not having seen all the provisions in the documents, this appears to be talking about the time between a distribution triggering event occurring and when, administratively, the payout will occur.

However, the document then states under IN Service Dist. "The Employer in its AA must elect the distribution election rights, if any, a Participant has prior to his Severance from Employment".

This seems to be going to the precursor issue of whether in-service requests are allowed, i.e. a request alone is a distribution triggering event. So it would look to me like the AA wins out over the 403b contract if the vendor and EE at some point agreed to subordinate the 403b contract to the ER's 1.1.09 403b plan.

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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Thank you. I do not necessarily know what you mean by subordinate. I know what the word means, but would they formally have to amend the contract to be in line with the plan doc?

Or another writing signed by the vendor and employee indicating that the 403b contract would only be dealt with in a way consistent with the ER's 1.1.09 403b plan and/or take instructions regarding the 403b contract from the plan administrator

John Simmons

johnsimmonslaw@gmail.com

Note to Readers: For you, I'm a stranger posting on a bulletin board. Posts here should not be given the same weight as personalized advice from a professional who knows or can learn all the facts of your situation.

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