Jump to content

Freeze 403(b) plan, start new one; successor plan issues?


Recommended Posts

We have a 403(b) plan that wants to move record keepers.  However, the assets are in some sort of investment that cannot be transferred over without the signed consent of all account holders ("Individual Custodial Trust Account" was the term used, I believe).

So, they are thinking of "freezing" the plan and starting a new one with the new r/k.

Does this pose a no-deferrals-for-a-year successor plan problem?

If not, will they have one if they terminate the first plan at a later date?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

Link to comment
Share on other sites

A 403(b) PLAN can have more than one investment/recordkeeper.  Just add the new one and inform the participants that no more contributions will go to recordkeeper # 1.  Sometimes the plan sponsor also does not allow loans from RK #1 (if their signature is required) and that encourages Participants to sign the paperwork and transfer the funds to RK #2. ( I have never seen a situation where "all" the account holders would have to sign.  Most individual account packages would require a signature to transfer an account.  So you will be able to transfer individual accounts as Participants see the reason to sign and do so.)  I am assuming from the degree of control suggested that this is an ERISA 403(b) so whoever prepares the 5500 will need to include all the assets from both recordkeepers.

Just keep the single plan format.  No freezing and no "new" plan and no "terminated plan.  Just two recordkeeper/ investments platforms.

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

Link to comment
Share on other sites

If they really want a new plan, and want control of the new plan, it's worth considering a 401(k) plan, in addition to terminating the 403(b). Particularly if the existing 403(b) is already an ERISA plan. 

But there are different testing and compliance considerations of course for 401(k) plans, so it may not be the best fit for them. 
 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

Link to comment
Share on other sites

Many providers of annuities (including TIAA) have these maddening older annuities with 403(b) plans that are 100 pages long and require each participant to sign off and then they have a ten-year withdrawal process which in this day and age is absolutely confiscatory IMHO---beware the sign-off procedure. We even had one vendor who actually called participants at their homes to encourage them NOT to sign the withdrawal forms !

Link to comment
Share on other sites

So, Bob, any feasible way around this?  Just stop contributing to that product and open up accounts somewhere else and start using those?  

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

Link to comment
Share on other sites

The main thrust of this is to get those assets under the management of the new provider.  Is there a way to terminate the plan and have this assets transferred to the new plan given that it is a plan of the same employer?  Or, does everyone have the right to a distribution and move the funds wherever they want?

QKA, QPA, CPC, ERPA

Two wrongs don't make a right, but three rights make a left.

Link to comment
Share on other sites

From the initial question, do not think there is an annuity liquidation issue (although the one referenced is anything but uncommon). "Individual Custodial Trust Accounts" are not, in my experience , annuity accounts but investment accounts. The issue is that these accounts are personal to the participant. The sponsoring employer has little authority over them. It would be a new one to me if all current account owners had to consent for any to roll their accounts to accounts provided by a new RK, but I would expect each individual account holder could elect (or not) to do so. As Ms. Jensen suggested, add the new RK and if individuals are not contractually prohibited (a contractual in-service distribution restriction?) from transferring from account #1 to #2, it becomes their option.

Link to comment
Share on other sites

Belgrath... the successor plan rules apply 403(b) to another 403(b).  They do not apply 403(b) to 401(k) (or vice versa).

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...