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IRC Section 420 transfers and IRC 503(b)


Guest David G
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Guest David G

If a governmental DB plan transfers excess assets to a 401(h) account, must IRC Section 503(B) be examined? IRC Section 420 exempts the transaction from IRC Sections 4980 and 4975, which already had an exemption for governmental plans, but does not appear to exempt the transaction from IRC Section 503(B). Assume that state statutory and constitutional law permits the transfer. If IRC Section 503(B) is potentially applicable, would it also apply if instead of a 420 transfer, a targeted distribution is made from the DB plan only to retirees who had health insurance costs? Would it matter if part of the retiree health insurance costs were normally an obligation of the employer?

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  • 5 weeks later...

My sense is that in this area, like so many others, Congress forgot to take the special situation of governmental plans (the fact that they are subject to 503(B) instead of 4975) into account. However, 503(B) is much more limited than 4975 in terms of what it prohibits, so I would not anticipate that it would be a problem in most cases.

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