Belgarath

School or school district mergers

5 posts in this topic

Curious - these days there is usually a lot of talk about merging public schools or school districts to save money. How does this work for their 403(b) plans? I mean, in private employer qualified plan situations, the plans are often merged, so there is an assumption of assets and liabilities, etc. But in a public school situation, there isn't any "trust" to be merged. So does the new school or school district just set up a totally new plan, and the old plans are "terminated" - which is another headache altogether, or are the plans in fact "merged" into a new plan of the new sponsoring school or school district? Many of these plans have individual annuity contracts titled to the employee, so a new school/district can't really "force" them to do anything. If there are employer contributions subject to a vesting schedule, then it seems like this could get very messy.

What would typically (if there is such a thing as typically) happen in these situations?

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Even if the public-schools employers attend to these issues, often there might not be much to do.

A typical public-schools employer's 403(b) plan is salary-reduction-only.

Most often, there is no Form 5500 report to do (or undo).

Most often, there is no plan trust to change.

Combining two or more governmental plans' written plans into one written plan shouldn't be too difficult.

If the combining employers are in a State that has collective bargaining or discussion, each employer should attend to those duties.  For example, it's unusual to discontinue an investment alternative without the assent of each union or association.

 

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Typically, the plans would be merged.  The existing contracts (annuity or custodial account) are the property of the individual employees, so they would not be affected.  To the extent that they are held under a group contract, the new employer could take over that contract.  The old money could just stay where it is.  The new money would be subject to whatever investment choices the combined employer plan specified.

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As a PS - when the plans are merged, since it is a new legal entity sponsoring the merged plans, is it plan #001? Seems like it would have to be - otherwise they are arbitrarily using the plan number of one of the merged plans?

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