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#1 and #3, definitely yes. #2 probably also yes, but there might be a nondiscrimination issue if the group of actives is predominantly HCE. There are some rules about how nondiscrimination applies to former employees that I don't know off the top of my head. Actually come to think of it there might be nondiscrimination issues with #1 depending on the number of HCEs and NHCEs who are eligible for each vesting schedule. If they go with #1 or #2, this may sound silly but make sure they know what to do with forfeitures. Since the plan is currently 100% vesting they probably have never had to do a forfeiture allocation before. If they go with #2, what happens if one of the former employees is re-hired?

Suggest you see a family practice attorney. Your problem has many variables and the outcome of almost none of them are determined by the retirement plan laws. I wish you the best. This sounds like a difficult and painful situation for you and your family.

I agree with Carol Calhoun (of course!) and Mr. Bagwell. 403(b) Plans can be very difficult to terminate because of the distribution of assets in 12 months requirement. Be sure to examine the annuity or other investment contracts in the 403(b) for termination rules or limits. My understanding is that a failure to get this completed within the 12 months, "disqualifies" the termination. So now (given a failure to distribute within 12 months) you may have assets improperly rolled over (payouts to some participants who then rolled over the distribution on the assumption that the plan termination was a distribution event) and if the sponsor has started the 401(k), the plan sponsor now would have two plans for 5500 filing etc. Paychex does not have a 403(b) product. So their "sale" to your client is an "If all you have is a hammer, everything is a nail" argument. They are not selling your client a 401(k) because it is the best plan for your client; they are selling a 401(k) because that is all they have to sell. A very significant advantage to a 403(b) is no testing requirement for the deferrals, as Mr. Bagwell notes. You might run a sample ADP test on this client's statistics to help them see what happens. This change is also, in my opinion, a fiduciary decision to be made by your client. They had better be prepared with investment and pricing comparisons to substantiate why this change is an improvement for the participants in this plan. A decent article on this is "Your Payroll Provider and 401(k) Provider Should NOT be the Same!" by Fiduciary Shield. Also Ary Rosenbaum (an ERISA attorney) writes on this topic all the time. I "Googled" and found one of his articles entitled "Why You Should Avoid Using Your Payroll Provider as your 401(k) Provider." Good luck! PNJ

If the plan document allows for commencement at NRA while still employed - so you may need to amend.

I have always understood the Rule of Parity measures the idea if they have a non-vested benefit on the date of termination not rehire. So I stand by my idea if they took a distribution in the past they had a non-forfeitable right that trigger that provision. This is why you hear all the time most employees ought to enter a plan upon rehire if they had any kind of service and the plan gave any kind of contributions. The difference between once a participant always a participant and Rule of Parity just aren't that large.

Well, I agree that is easiest, but sometiome speople have been gone for 7 or 10 years and its a bit awkward to tell them they are in straight away. "In the case of a Former Employee who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions, " A Participant who took a distribution 8 years ago does not today have a "nonforfeitable right to any interest in the Plan" so I'm not convinced that taking a distribution is irrelevant. For example if a participant still has money in the plan 8 years later they never stopped being a participant in the first place and they clearly have a non-forfeitable right to an interest in the plan...

From a practical stance.... Don't forget about the benefit of no ADP test in the 403b. Often the non-profits have poor participation and the ADP test can get ugly real quick. I can think of a couple situations in my experience where the 403b was the best choice, but a 401k was done. So don't get sold a 401k because that's what paychex knows better than 403b.

As long as the 403(b) is completely terminated and all assets distributed, there are no legal issues. There are, however, two ways in which employers get tripped up on this. Some 403(b) providers (particularly annuity issuers) have restrictions on the investments which may prohibit distributions except at the participant's direction. This can in some instances make it impossible to distribute assets, and thus to get the plan completely terminated. In some instances but not all, you can get around this by distributing the annuity contracts rather than cash, but you really have to look at the contracts. Some employers want to just move all the existing money to the 401(k) plan. You can't do that, because there is no provision for plan to plan transfers from a 403(b) to a 401(k). You can give participants a choice of taking the money in cash or rolling it over to a vehicle of their choice (which could include the new 401(k) plan), but you can't restrict their choices. There is no required 12 month wait. The rules that prevent distributions from a 401(k) if you set up a new 401(k) too soon do not apply if the old plan is a 403(b).

Isn't the answer for any one of those that ends with "took a distribution" mean they had a non-forfeitable right? So really the only two that seem hard are elig for 4k and never made any cont and elig for PS and never got an allocation. The simple answer is to get everyone to set up a once a participant always a participant plan 100% of the time! ?