Peter Gulia

With a plan that's intended as a 403(b) plan, the opportunities for getting a plan into reasonable ERISA and Internal Revenue Code compliance are more flexible than for section 401 plans. But which solutions are worth pursuing depends heavily on the particular facts and circumstances, including even the identity and charitable purposes of the plan sponsor, and so doesn't work well as a bulletin-board discussion. I've done many workouts with employers that had never imagined the existence of ERISA. Please feel free to call me for a conversation (without fee) about what's feasible.

Leaving aside all other questions and issues, one might advise a plan administrator to consider carefully how it should decide whether a court's writing is or isn't a domestic-relations order. Some practitioners quote the then-PWBA's 1997 QDRO booklet to support a view that "[a] plan administrator is generally not required to determine whether the issuing court or agency had jurisdiction to issue an order[.]" Page 16, Q 2-8. PWBA cited as its suppport for that view ERISA Advisory Opinion 92-17A. But that Opinion did not reach, and expressly set aside, the issue of whether the court had jurisdiction. (And, of course, the booklet is not a rule that a Federal court need defer to.) Further, the Opinion stated that the plan administrator must "determine" that the writing submitted to it is a domestic-relations order. One phrase in the Opinion suggests that a plan administrator might assume that a writing is an order if it "is made pursuant to a State domestic relations law by a State authority with jurisdiction over such matters" even if the court lacked jurisdiction for the particular matter. But a more cautious view might be that it's unclear whether a court's writing is an "order" to the extent that the court lacked jurisdiction for what the order commands. (State law concerning a duty to raise jurisdiction questions and the effect of not doing so promptly shouldn't affect a plan administrator. In the usual situation, neither the plan nor the plan administrator would have been a party to, or otherwise would have appeared in, the State court proceeding, and so would not have had a duty or even an opportunity to raise jurisdiction questions.) Although a plan administrator should not abandon its fiduciary duty to decide claims, in circumstances that involve an ambiguity about what the relevant law is a plan administrator might properly seek a Federal court's decision if the relation of the stakes and the plan expenses makes it prudent to do so. (Concerning an individual-account plan, a plan administrator might need to consider also whether to allocate all or some of the plan expense to the participant's account that's the subject of the question, and whether to allocate some or all of the plan expense generally among all individual accounts.) Please understand that the discussion above is a pure hypothetical: I'm an ERISA guy, and I have not researched what powers a domestic-relations court (of Pennsylvania, or of any State) has after the death of one of the divorced parties.

A local-government employer maintaining two or more plans that the employer intends as 457(b) plans is common; whether it's sound is a different question. The regulations state: "In any case in which multiple plans are used to avoid or evade the requirements of [sections] 1.457-4 through 1.457-10, the [iRS] may apply the rules under [sections] 1.457-4 through 1.457-10 as if the plans were a single plan." 26 C.F.R. 1.457-3(b). As one part of this, the employer remains responsible for applying deferral limits based on all deferrals under all plans regarding the participant's relationship with the employer. 26 C.F.R. 1.457-4(e)(2). And for the "last-three-years" catch-up, the regulation states that an employer "sponsoring more than one eligible plan may not permit a participant to have more than one normal retirement age under the eligible plans it sponsors." 26 C.F.R. 1.457-4©(3)(v). An employer that permits more than one service arrangement (whether under separate plans, or even under one plan) should be alert to how this can increase fraud risks. For example, imagine that separate accounting reports from providers A and B for the quarter ended September 28, 2007 show that Bill Sharp received on August 8 an emergency distribution of $2,352.87 paid by A, and Bill Sharp received on August 20 an emergency distribution of $2,352.87 paid by B. Although it's possible that Mr. Sharp in fact had two different emergency situations, the IRS might assert that the low likelihood that different situations would happen to result in identical need amounts puts the employer on inquiry notice such that it should look into whether this participant submitted a false claim. Two suggestions about potential advice that you might choose to present to your client: Consider integrating all documents into one that is accepted by CalPERS and all other providers. (In this, the insurance company might not care much about which plan provisions the employer selects.) If there is more than one service arrangement (whether under two plans or one plan), the employer might instruct a plan auditor to test for the points mentioned above and other kinds of mistakes and frauds that could become more likely because of the use of more than one service arrangement.

Even if all other securities, tax Code, and ERISA issues are solved, there still can be a prohibited transaction if a transaction or series of transactions has the effect, even indirectly, of creating or supporting a situation for the management company to manage (for compensation or another benefit) if the situation would not have been subscribed without the plan's investment. However, there are right ways to do this kind of retirement plan investment.

It might be unnecessary to consider whether Congress should lengthen the ERISA § 104(b)(1) five-year interval. That statutory command for integrating explanations into a revised SPD is only one of a plan administrator’s duties. Courts have interpreted ERISA to recognize a fiduciary’s duty to communicate information that participants, beneficiaries, and alternate payees need to know. And those communications must be no less helpful than those that a prudent-expert fiduciary would use for the purpose of providing benefits and administering the plan in circumstances similar to those of the plan and participants involved. Some practitioners suggest that it’s easier for a fiduciary to meet those duties if the plan’s administrator revises and delivers a new-edition SPD every year. The expense of the revision will almost always be a proper plan-administration expense. And with many workplaces using e-mail delivery for most participants, the expense of delivery often is quite modest.

A few suggestions without any advice. First, it's important for a State or local government employer (or its worker) to be confident about what State law enables (or doesn't). The Internal Revenue Code doesn't directly preclude deferred compensation between a State or local government employer and its worker. And if neither party wants the Federal income tax treatment of section 415(m), a plan could provide deferred compensation meant to replace the difference between what a retirement plan provides and what it would have provided if qualified-plan restrictions didn't restrain the retirement plan's benefit (whether a defined benefit or from an allocation of a contribution). The hard part is that the portion of that deferred compensation that isn't under a section 457(b) eligible plan will result in income and tax under rules for deferred compensation. Culturally, many State and local government employers and their workers don't like those rules. In particular, many paymasters find it challenging to W-2 tax-report a wage for an amount other than, or a time earlier than, as paid. But if increasing an official's or employee's salary or other compensation is politically a non-starter, a deferred compensation plan might be an outlet. While many lawyers can be competent with deferred-compensation rules (especially since recent regulations and other interpretations have clarified the Treasury department's views), only a very few have experience with the intersection between tax-law knowledge and the environment of State and local government employers.

If a record-keeper is confident that it isn’t a fiduciary but nonetheless wants to do something about anticipated but unpaid contributions, it might consider making clear that it acts not to protect the plan but rather in exercising its rights concerning its service contract, or otherwise to protect itself. See, for example, CSA 401(k) Plan v. Pension Professionals, Inc., 195 F.3d 1135, 1137–38 (9th Cir. 1999); see also Arizona Carpenters Pension Trust Fund v. Citibank, 125 F.3d 715, 722 (9th Cir. 1997); Beddall v. State State Bank & Trust Co., 137 F.3d 12, 21 (1st Cir. 1998); Coleman v. Nationwide Life Insurance Co., 969 F.2d 54 (4th Cir. 1992), cert. denied, 506 U.S. 1081 (1993). Notice that in each of these cases a defendant ultimately succeeded in getting a court to find an absence of an extra duty but paid attorneys’ fees to get to that point. Worst of all, the plaintiffs in the CSA case asserted that the record-keeper’s attempt to get the thief to pay the contributions is what made it a fiduciary. Pension Professionals, Inc.’s mistake was giving the thief a second chance and not getting rid of a dangerous customer at the earliest opportunity. Depending on what facts one knows or doesn’t know and the potential size of the suspected theft, some record-keepers might consider one or more of the following steps: • collect outstanding fees owed to the record-keeper; • send each participant (if the record-keeper has an address) a notice warning that the record-keeper has no obligation to him or her; • send the plan administrator a notice ending the service contract at the earliest time that would not be the record-keeper’s breach. As with any evaluation of risks, one wants to consider the particular facts and circumstances.

While of course this isn’t advice to anyone, here’s one idea. After a plan sponsor has made its settlor decisions to amend and end a plan, the plan’s administrator might (even if not so required by statute) act in its discretion to preserve an employer’s obligation (if any), and a reemployed person’s opportunity, for USERRA make-up contributions. An administrator might do this by getting an annuity contract with an insurance company. The contract would include the insurer’s promises to: • accept contributions that are required or permitted under USERRA, • provide a broad range of investment options, • not pay a death distribution other than to a surviving spouse except under a qualified election, • pay a distribution no later than the applicable IRC § 401(a)(9) required beginning date. Perhaps such a plan administrator could suggest to an insurance company the public-relations value of this availability, and persuade the insurer to bind the contract for an initial premium of $1.00. The plan administrator would distribute the annuity contract to the individual in military service. If reemployed, he or she may use his or her rights under USERRA and the annuity contract.

If the Form 5500 instructions are ambiguous and there’s a choice about which value to report, one practical approach (for a plan administrator that hasn’t already decided which of the many valuation and accounting methods is most informative for the purposes of the report) might be to ask its auditor which value the auditor would prefer to support a professional opinion that the plan’s financial statements “fairly present” the plan’s net assets available to pay plan benefits. In theory, the plan administrator should select (if Form 5500 instructions don’t control the point) the method that it, as a prudent-expert fiduciary, finds is most informative to readers of the Form 5500. But often a real-world path of least resistance is for a plan administrator to say that it reasonably relied on an accounting expert’s professional opinion. The accounting guidance suggests that a CPA shouldn’t go along with a fully-benefit-responsive book-value position unless, along with other conditions, an “event” that would limit the plan’s right to transact at book value was not “probable of occurring”. For many a plan’s report, there might be about nine months between the financial-statements date and the fieldwork-close date; and some auditors might feel that the occurrence or non-occurrence of an event during that time is partial evidence that might help one judge whether the event was or wasn’t “probable” as at the financial-statements date.

There are some right ways for a retirement plan (IRA or § 401 plan) to buy original-issue shares in a new corporation, or otherwise invest in a start-up business. The hard bit is doing so without triggering a prohibited transaction, taxable unrelated business income, or other nasty consequences. Moreover, Labor department interpretations (which also are authority concerning tax-Code prohibited-transaction rules) suggest that the Government might challenge transactions that, even if entirely proper in form, seem to involve some “arrangement or understanding” to evade exclusive-benefit, fiduciary-responsibility, or prohibited-transaction rules, or to do indirectly that which could not have been done directly. So one needs the advice, and usually order-of-transactions hand-holding, of a lawyer who understands this business idea and knows every inch of the prohibited-transactions rules along with the Labor and Treasury departments’ and courts’ interpretations of them. Sometimes, a service provider suggests that it has or will get an IRS determination that a plan using this investment method is “legitimate”. (Others present an IRS determination truthfully, but without explaining the limits on what it means.) An IRS determination that a document in form states a qualified plan doesn’t consider actual transactions and never opines on prohibited-transaction questions. To defend an implementation, a smart participant wants the support of his or her expert lawyer’s candid outlook, reputation, quality opinion letter, and malpractice coverage.

Getearl, you describe what many might consider a common-sense view – that a way, sometimes a good way, to construe or interpret a statute’s word that’s not specially defined by the statute is to consider the meaning or use of the word in a related context. And I empathize with a sense that many of the practitioners who use these bulletin boards prefer “tidy” answers, hoping that the law is clearly stated. But let’s recall that joel’s originating question asked: “Is there a possible scenario where a voluntary salary reduction only 403(b) arrangement can come under ERISA?”. Internal Revenue Code § 403(b) governs only whether contributions to a contract will or won’t be excluded from gross income for Federal income tax purposes. While § 403(b)(1)(A) restrains which kind of employer can pay over a § 403(b) contribution, this text doesn’t by itself preclude the possibility that a person other than the employer might “establish” or “maintain” a “plan or program” as non-tax ERISA uses those words. And the text of ERISA expressly recognizes the possibility that a plan can be “established” or “maintained” by a person other than an employer that contributes to the plan. Whatever one thinks about the merits of the possible interpretations and arguments (and I advocate none of them), we should be mindful of the possibility that some set of facts could result in an ERISA-governed plan, or at least that a court might so find.

Before we too quickly conclude that ERISA never governs any 403(b) arrangement for public-schools employees, we should allow for at least the possibility that there could be facts that might show that an employee organization (such as a labor union) "established" OR "maintained" a plan or program that provides retirement income to employees. A variety of arguments might be made concerning whether a plan or program maintained by an employee organization could be or can't be something different than a plan (if any) that's established or maintained by a government or by an employer of the employees. See ERISA 3(2)(A), 4(b)(1), 29 U.S.C. 1002(2)(A), 1003(b)(1); compare 29 C.F.R. 2510.3-2(d)&(f).

In helping a claimant consider his or her negotiation strength or weakness, be aware of the possibility that State law might impose special procedural requirements on a claim against a government entity. In some States, a claim against the State or its agency or political subdivision (which might include a public-schools district) can be submitted only to a special-jurisdiction court. In some States, this court sits only in the State's capital city. For claims against a government entity, often a shorter statute of limitations and statute of repose applies. Also, a failure to perform special service on the Attorney General or a similar official might destroy the claim.

The instructions for Schedule C seem to say that an administrator completing Part II should consider as the service provider not the natural person but rather the corporation, partnership, or other business organization through which an accountant or actuary practices. See page 33.

An administrator’s evaluation of a participant’s claim for a hardship distribution involves two prongs: (1a) Has the participant claimed an “immediate and heavy financial need” of a kind for which the plan provides a distribution? (1b) What’s the amount of that need? (2) Can the participant relieve his or her need by means other than taking the hardship distribution? The paragraph that Belgarath helpfully cites allows reliance on the participant’s statement “[f]or the purposes of paragraph (d)(3)(iv)(B)” – that is, the no-other-means prong. Some administrators interpret the rule’s express statement about relying on the participant’s statement for one specified purpose as suggesting that the Treasury department’s interpretation of IRC § 401(k)(2)(B)(i)(IV) doesn’t allow such reliance for other purposes. [see generally Bryan A. Garner, Black’s Law Dictionary (8th ed. 2004) at 1717 (“Expressio unius est exclusion alterius. The expression of one thing is the exclusion of another.”)] Other administrators ignore this hoary maxim, and interpret a plan to permit a distribution based on a participant’s claim without further evidence if the facts and circumstances make it reasonable to do so. One of those circumstances might be the administrator’s belief that a participant ought to be deterred from lying if the plan’s claim form tells a claimant that submitting a false claim is a Federal crime that can be punished by a fine and up to five years’ imprisonment. See 18 U.S.C. §§ 664, 1027. Without considering whether such a belief is reasonable, I’m aware of IRS examinations in which an employer has successfully defended a claim-form-only procedure. Moreover, even if an administrator believes that some participants would submit a false statement, it’s also easy to imagine that they could almost as easily fabricate ostensibly independent evidence. I’ve seen forgeries of death certificates (complete with accurate colors and raised gold seal) that to any but the most eagle-eyed reviewer look the same as the real thing. How hard would it be to fake a physician’s bill or a servicing bank’s eviction notice – especially when many genuine documents of this kind are merely laser-printed on cheap paper? ERISA § 404(a)(1)’s standard of care permits a fiduciary to resolve the tensions in the sometimes competing elements within that standard. An administrator could find that it’s prudent to design a claims procedure to leave out a step that wouldn’t screen out many false claims and that would find them only at unreasonable expense. Please understand that none of the views described above reflects the advice that I’d give a client.

Readers, please don't be offended that this post isn't a simple yes-or-no answer. The finding asked involves facts-and-circumstances interpretations, and a professional would want to do that after checking into all of the surrounding facts. The finding that the plan administrator needs is a "reasonable risk of liability for breach of a fiduciary duty[.]” What the reg looks for is whether the fiduciary's fear that it could be liable is a reasonable fear. While J Simmons' thoughtful follow-up inquiry asks us to assume a finding that there was no breach, real-world facts often aren't tidy and could be open to a range of interpretations. For example, a desire to exit an investment that hasn't yet matured sometimes is not investment-based and instead relates to poor administrative services provided by the investment's issuer or by a record-keeper that's somehow tied-in with the investment issuer. It often doesn't take much to find that the earlier selection of the poor-service provider might have been made with less diligence than a prudent-expert standard of care required. Further, it's possible to have a risk of liability for a fiduciary breach without having a fiduciary breach. As any of us who have defended litigation know, once a plaintiff alleges a claim, the defendant bears a risk that a judge or jury will decide the claim differently than what the defendant believes is correct. A lawyer's advice about whether a particular set of facts and circumstances involves a "reasonable risk of liability ..." might consider that a reasonable person could fear liability, not because the fiduciary breached its duty, but rather because there are enough unfortunate facts for a claimant to state a plausible-enough allegation. One also might look at what the facts suggest about potential motivations for the fiduciary's willingness to pay restoration. If 90% of the payment would be allocated to a business owner and people she has reasons (other than fear of liability) to favor, that might seem suspicious - at least in the absence of more persuasive evidence of a fiduciary breach. Conversely, a business owner's restoration payment that would be mostly allocated to a substantial group of non-highly-compensated employees might suggest that the business owner is willing to pay in the money because she recognizes sincerely that she acted as less than a prudent expert for the plan's investment and service-provider selections.

A “restorative payment” that a fiduciary pays into a plan not to make up a plan’s losses from market fluctuations but rather because there is a reasonable risk that the fiduciary otherwise would be liable for his, her, or its breach of a fiduciary duty owed to the plan is not an annual addition counted against the IRC § 415© limit. Treasury Reg. § 1.415©-1(b)(2)(ii)©. Likewise, if a plan administrator allocates the payment as full or partial restoration of investment loss (including opportunity loss), rather than as one would allocate a contribution, the restoration wouldn’t count in most non-discrimination tests. The plan fiduciaries must allocate such a restorative payment among all individual accounts that are affected by the breach, and must allocate it under an allocation method that fairly relates to each account’s losses attributable to the breach. Of course, it remains for factual and legal-interpretation analysis whether the provision that the “GIC” contract describes as a “market value adjustment” really involves something other than “losses due merely to market fluctuations” and also that “there is reasonable risk of liability for breach of a fiduciary duty[.]” For both issues, the plan administrator that wants comfort that a payment is or is not an annual addition could get some protection under both ERISA and the Internal Revenue Code if it reasonably relies in good faith on an expert lawyer’s written opinion.

Whether it’s wise to name the employer as its employee-benefit plan’s trustee is a separate question. But it’s not at all clear that a plan’s creator can’t establish a trust that names such a corporation as the trustee. Even if a State statute prohibits a non-natural person other than a bank or trust company from acting as a fiduciary, a common exception is for such an organization to serve as the trustee regarding a plan to provide benefits to the organization’s employees. Some States do this expressly in the banking statutes, others in the general-business-organizations statute, and yet others by courts’ interpretations. While I haven’t done a 50-States survey, I’ve rendered advice on enough States’ law concerning this point to believe that there’s usually a way to make it work. Like many practitioners, I usually suggest that it’s “safer” to choose a trust company (even if it’s one that has some business relationship concerning an investment or service provider). If an employer decides to “self-trustee” a plan, naming as trustee the corporation, rather than a particular natural person, sometimes can help keep documenting which natural persons make the trustee’s decisions internal to the corporation’s resolutions and minutes, rather than a matter that might involve documents exchanged with the plan’s other service providers. A natural person who is or might become involved in making the trustee’s decisions could get his or her lawyer’s advice about how ERISA defines a fiduciary and how courts have interpreted, and might further interpret, that definition. Such a person also could get advice about how to protect himself or herself using a combination of ongoing advice (much of which can be paid for from plan assets), liability insurance, and the employer’s additional defense and indemnity.

If the person whose consent is called for is “legally incompetent”, ERISA and the Internal Revenue Code do not preclude a plan from recognizing a guardian’s act as the spouse’s consent, even if the electing participant is the spouse’s guardian. 26 C.F.R. § 1.401(a)-20/Q&A-27. Under a U.S. government-organization plan, the Treasury department’s interpretation also is relevant concerning ERISA § 205. 43 Federal Register 47713 (August 10, 1978). Even if a plan is ERISA-governed, a guardian’s authority is grounded on State law. A guardian must act in the best interests of his or her ward. A guardian serves under a court’s supervision (at least indirectly), and must account for his or her actions. Further, some guardianship decisions require a court’s approval before the guardian implements the decision. Depending on the powers granted and other State law, the guardian might need to persuade a court that choosing against a survivor annuity is the ward’s best interest.

An important principle of the necessary-and-reasonable-services exemption is that the compensation of a fiduciary must be decided by another fiduciary that is independent of the service-performing fiduciary. With an orphan plan, it’s often hard to find any fiduciary, and even harder to find one that’s independent of the one who’s willing to do the wind-up work. That’s why a wind-up fiduciary who isn’t a qualified termination administrator (see below) or an uncompensated volunteer gets the Federal court to approve the appointed fiduciary’s services and compensation. When a wind-up fiduciary has paid himself without independent approval, the Secretary of Labor has sued for restoration of the prohibited transaction. Arguing that the plan really needed the work isn’t a defense to the lack of independent approval. The QTA rule can help only if an eligible bank, trust company, or insurance company that already has assets of the abandoned plan is willing to serve as the plan’s QTA. If such a company (not a natural person) volunteers, its fees for QTA service must be both “consistent with industry rates” and no more than the company’s fee for similar services for similar customers that are not orphan plans.

If the trustee you describe is an employee of the employer that maintains the plan, it's unlikely that the plan could pay for such a trustee's services. Even if an expense otherwise would qualify for the necessary-and-reasonable-services exemption [29 C.F.R. 2550.408b-2] with approval by an independent fiduciary that had no interest in the payee, another regulation interpreting that exemption declares unreasonable (and thus a PT) "compensation to a fiduciary who is already receiving full-time pay from an employer ... (any of whose employees are participants in the plan)[.]" 29 C.F.R. 2550.408c-2(b)(2). What the employer feels like paying for from its resources is the employer's question.

Also, be careful to compute (but see an exception below) contributions only on that portion of the minister's earned income that's attributable to his or her ministry, rather than to work that's not for the church. Usually, only an employee (but not an independent contractor) of a charitable organization may make (or have made for him or her) § 403(b) contributions. Many ministers are self-employed for most tax purposes. Special rules permit § 403(b) contributions for a minister, even if he or she is self-employed. A minister’s earned income from ministry (which might include services for the church or a church-related charity) is treated as his or her § 403(b) includible compensation. Instead of an exclusion, a self-employed minister may deduct his or her § 403(b) contributions. A special $10,000 limit sometimes helps a church employee who has little or no "cash" compensation. After 2001, a § 403(b) contribution of a church employee (see below) meets the annual-additions limit if the contribution is no more than $10,000. The total contributions using this rule (including a pre-EGTRRA version of it) for all years (including pre-2002 years) can’t exceed $40,000. Example: How a church’s housing allowance affects the annual-additions limit Frank is the pastor of Fellowship Church. The Church doesn’t provide Frank any salary or wages; rather, his only compensation is his obligation to live in the Church’s parsonage. If a parsonage allowance doesn’t count in § 415 compensation, Frank’s compensation is $0.00. If the usual annual-additions limit applied, Frank’s limit would be $0.00 [100% x $0.00 = $0.00]. Internal Revenue Code § 415©(7)(A) permits a contribution of up to $10,000 into Frank’s contract. But if Frank continues to have no compensation and contributions to his § 403(b) account are $10,000 each year, he may use this rule only for four years [$10,000 x 4 = $40,000]. This rule applies to an employee of a church, a convention or association of churches, or an organization that’s controlled by or associated with either a church or a convention or association of churches. 26 U.S.C. §§ 403(b)(1)(A)(iii), 404(a)(10), 414(e)(5), 415©(7)(A)-(E); 26 C.F.R. § 1.415©-1(d)(1)-(4) (not yet officially codified). See also Proposed Treasury Reg. § 1.403(b)-9(b)&©. Following the spirit of this bulletin board, please understand that this general information isn't tax advice to anyone.

Although it might not be the kind of obvious public authority that you seek, here's another way to look. It's common for a sponsor of a group trust to include in its trust declaration that the last of the kinds of permitted users is another group trust that has an IRS determination and restricts its use to the same kinds of retirement plans and other eligible users that could directly use the group trust. In my experience, such a provision doesn't cause any difficulty with getting a "clean" routine IRS determination that the group trust is a tax-exempt 81-100 trust. So one starting point might be to look at the text of each group trust's governing documents: does the "investor" group trust authorize investment in another group trust? does the "investee" group trust permit another group trust as a user?

The default-rollover idea depends on both the terminating plan and the receiving plan having the right provisions that support the rollover. First, a terminating plan doesn't allow a participant to receive a distribution, but instead requires the participant to receive a distribution. Even for a plan that no longer has any profit-sharing contributions or other benefit accruals, a qualified retirement plan isn't terminated until it pays the money (or delivers the property or rights) of its final distribution. Many employers' plan amendments to implement a plan termination provide that the final distribution is a single-sum distribution. However, I've seen (and written) provisions for a final distribution that set a series of payments long enough to meet an investment-related purpose but short enough that the distribution still is an eligible rollover distribution. The notice of such a final distribution gives a participant a choice between receiving the distribution as a payment of money or as a payment of a direct rollover to the eligible retirement plan specified by the participant. It's important to keep in mind the likelihood that something less than all of the terminating plan's amounts would move to the retirement plan that's named as the default. Some participants choose against a rollover, and some choose a rollover to a retirement plan other than the default. But I've seen situations in which 80% to 99% of the terminating plan's amounts became rollover contributions (not a merger or transfer) to the "suggested" plan. Of course, the receiving plan must exist before it can receive rollover contributions, and it's smart to make sure that the receiving plan properly can receive, and is willing to accept, the rollover contribution. If there is any significant doubt, the employer writes or amends the documents of the receiving plan at the same time that it writes the plan amendment of the terminating plan. The employer can write the terminating plan's documents and notices so that the plan administrastor had no choice (and thereby little fiduciary responsibility) concerning which retirement plan receives a default rollover of a participant who had not communicated his or her instructions. Nonetheless, an employer likely uses this default-rollover idea because the employer believes that the "suggested" retirement plan is good for a typical non-instructing participant.

Although these are not the only choices, the practical options are: transfer the 457(b) plan's assets and liabilities to another 457(b) plan that is maintained by an eligible State or local government employer "within the same State", or amend the 457(b) plan to conform to then-current IRC 457(b) at the termination time, and provide for and pay or deliver a prompt final distribution to every participant, beneficiary, and alternate payee. See 26 C.F.R. 1.457-10(a)(2). State and local law might impose further conditions.