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401k to Non ERISA 403b

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The issue here is not the "Successor Plan" issue.  It is clear that a 401(k) can be terminated and a 403(b) started without the 12 month wait. 

The interesting issue is whether the 403(b) can be Non-ERISA.   I could not find anything "spot on" about this question.  The "Once ERISA; always ERISA rule is usually articulated with regard to "a plan."  In other words,  an ERISA 403(b) plan cannot be changed into a Non-ERISA 403(b) plan (same plan).  It would seem possible to  terminate the 401(k) and file a final 5500 and payout all the plan assets and then, as an unrelated matter, start a Non-ERISA 403(b).

The Plan Sponsor must be very careful to avoid any involvement with the Non-ERISA 403(b) plan which would involve a judgement or discretionary determination.  The issue of rollovers comes immediately to mind. Unless you can find a vendor for the Non-ERISA 403(b) which will assume all responsibility for rollovers, I think this area could be a problem* for your new Non-ERISA plan.  This impacts the situation you describe because I do not think it will be possible to rollover the money from the terminated 401(k) into the Non-ERISA 403(b) unless you can find a vendor who will do it without plan sponsor input.

*In Carol Calhoun's excellent piece "403(b) Plan Design and Compliance" (Published in 2018 in Lexis Practice Advisor), she notes that Plan to plan transfers  would be  prohibited exercises of discretion for a Non-ERISA plan.    (Reading the entire section of her article on Non-ERISA plans would be a very good idea for the sponsor of the Non-ERISA plan.)  

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

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