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Flyboyjohn

Replacing 403(b) with 401(k)

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Terminating custodial account (mutual fund) 403(b) and offering new 401(k)(realize merger not possible). Same custodian in each plan.

Current 403(b) participants will be offered cash-out, rollover

to IRA or rollover to new 401(k).

For participants NOT making an affirmative election sponsor

wants to make the default a rollover to the 401(k). Also, since the same funds will be available in the 401(k) sponsor wants the default investment election to be the same elections the

participant had made in the 403(b).

Assuming all appropriate disclosures are made are there any

problems with this approach?

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I have seen plan sponsors take this approach, but the danger is that there safe harbor protections of the Code and ERISA that support default IRA rollovers will not be available. So, even though the plan sponsor wants to do the right thing for its participants, if the market goes down, it practically guaranteed that some participants will sue the plan sponsor. Is that an acceptable risk?

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