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Continuation: Point 1. From the enactment of Section 403(B) nearly half a century ago until January 1, 1989 an employee was permitted to make taxable withdrawals from an annuity contract at will and simply pay the tax owed. Point 2. Revenue Act of 1978 allowed for rollovers to another TSA or to an IRA (P.L. 95-600, Act section 156(a)). These rollovers could only be done, however, by satisfying a rollover distribution event: (death, disability, separation from service or attainment of age 59.5). Point 3. So from 1978 to 1988 an employee could make a taxable distribution at will but needed to satisfy a triggering event (section 403(B)(8))in order to effectuate a rollover distribution. Point 4. Tax Reform Act of 1986 (P.L. 99-514) added section 403(b)11 to section 403(B). Now the employee was required to satisfy an early distribution event (death, disability, separation from service or attainment of age 59.5) in order to make a taxable distribution. Point 5. The UCA '92 eliminated the triggering events for rollover distributions (403(B)8 but retained the triggering events for taxable distributions (403(b)11). Point 6. In the post UCA '92 era the 403(B) community has used the triggering events for a taxable distribution under 403(b)11 to also govern rollover distributions.

GBurns asks: Who sells these 401(a) plans? Answer: The same entities that sell all the other tax-favored retirement plans. Peace, Joel L. Frank

ACCESS RESTRICTIONS AS A BAR TO ROLLOVERS? By: Joel L. Frank Under the Code prior to UCA '92, a distribution could be rolled over from a TSA to another TSA or IRA only if (1) is was a total distribution or a partial distribution equal to at least 50% of the balance to the credit of the employee, (2) the distribution occurred because of specified triggering events (death, disability, separation from service or attainment of age 59.5) and (3) the distribution was rolled over in 60 days. Code Section 403(B)(8)(A)-(D), prior to UCA '92. In general, UCA '92 simplified the rollover rules for TSAs by eliminating (1) the distinctions between total and partial distributions, (2) the mandatory triggering events upon which a rollover could be made, and (3) the requirement that distributions must be made within one taxable year of the employee. Code Sections 403(B)(8)© and 402(a)(5)©, prior to UCA '92. CONFUSION: In its Information Letter of May 19, 1995 the IRS laid out its position that the access restrictions found in Code Section 403(B) 11 are a condition precedent to a distribution ---and therefore a rollover---of salary reduction amounts. On May 21, 1999, however, in its IRM Handbook 7.7.1, Chapter 13, 403(B) Plans, the IRS says at 13.9.2 (1) c. “Unlike transfers, there must be a distribution event under the plan or contract to have an eligible rollover distribution” The various 403(B) issuers have been using the Information Letter and not the Handbook guideline. The early distribution events as enumerated in the Information Letter are quite specific because section 403(B) 11 is quite specific. This contrasts sharply with the Handbook where it says “there must be a distribution event under the plan or contract.” The Handbook Guideline recognizes that the specified distribution events under section 403(B) 8, the rollover provision of section 403(B) were repealed effective with the UCA '92. The Handbook Guideline further recognizes that section 403(B) 11 is the early distribution provision and, as such, has no application to eligible rollover distributions. The Handbook Guideline, therefore, properly assigns the nature of the distribution event, for rollover purposes, to the “plan or contract”. The clear intent of the statutory repeal of the rollover events under 403(B) 8 was to eliminate the universality of these specified rollover distribution events by leaving it up to the individual 403(B) plan or contract to decide on the specificity of the distribution events in order to have an eligible rollover distribution. Is it not ludicrous to require an early distribution triggering event (death, disability, separation from service, attainment of age 59.5 or in the case of hardship*) under Section 403(B)(11) in order to effectuate a rollover distribution to another TSA which is subject to the same early distribution triggering events under Section 403(B)(11)? Is this not the very reason why the UCA '92 eliminated the mandatory triggering events under section 403(B) 8 (death, disability, separation from service or attainment of age 59.5) upon which a rollover distribution could be made? BIFURCATION: The use of section 403(B) 11 to govern rollovers results in two sets of rollover rules for section 403(B) 1 annuity contracts: Rule 1: Pre-1989 Amounts: The early distribution events under section 403(B) 11 did not go into effect until January 1, 1989, therefore, section 403(B) 1 contract balances prior to that date may be rolled over without a rollover distribution event because the rollover distribution events under section 403(B) 8 were repealed under the UCA '92. Rule 2: Post-1989 Amounts: Contract balances subsequent to December 31, 1988 may only be rolled over upon satisfying an early distribution event under section 403(B) 11 because the effective date of section 403(B) 11 is January 1, 1989. CONFLATION: Section 403(B) 8 is the rollover distribution provision of section 403(B) while section 403(B) 11 is the early distribution provision; they do not conflate. The use of the early distribution events under section 403(B) 11 to govern eligible rollover distributions under section 403(B) 8 renders the repeal of the rollover distribution events under section 403(B) 8 meaningless. Is there anyone out there that agrees with my position? Peace, Joel L. Frank rollover@optonline.net *Hardship distributions are no longer eligible for rollover treatment. Code Secs. 402©(4) and 403(B)(8)(B). Internal Revenue Service Restructuring and Reform Act of 1998.

It is quite apparent that for all distribution options, other than lifetime annuitization, a 403b retiree would be much better served by investing in mutual funds through a 403(B)(7) Custodial Account rather than in an Annutiy Contract through 403(B)(1). Additionally the IRS needs to let us know which one of its two guidelines needs to be followed in order to have an "eligible rollover distribution". Guidline 1: On May 19, 1995 the IRS issued a General Information Letter setting forth its position that the access restrictions found in Code Sec. 403(B)(11) are a condition precedent to a distribution---and therefore a rollover---of salary reduction amounts. Or, Guideline 2: In contrast to its Information Letter, the IRS states in its IRM Handbook 7.7.1, Chapter 13, at 13.9.2(1) c. (May 21, 1999):..."there must be a distribution event under the plan or contract to have an eligible rollover distribution." Unlike the Information Letter, the Handbook Guideline recognizes that the specified distribution events for eligible rollover distributions was repealed under Sec. 403(B)(8) with the UCA '92. This repeal reflects Congressional intent to eliminate the universality of specific distribution events in order to have an eligible rollover distribution. The repeal, as reflected in the Handbook, indicates Congressional intent to have the Plan Document, not the Code, establish the events upon which a participant can have an eligible rollover distribution. In my view the Handbook guideline supercedes the General Information Letter. The Handbook guideline further recognizes that 403(b)11 is the early distribution provision of section 403(B) while 403(B)8 is the rollover provision. Best wishes, Joel L. Frank

Michael, Why can't the annuitized period be more than 10 years?

Is the 403b funds in a payout phase via annuitization? Please clarify.

Once you determine the number of years you will buy back and your age at that time you will be in a better position to calculate if in fact it pays to make the purchase. Please keep in mind that 457 funds do not have to be annuitized in order to generate retirement income while funds used to buy back service will be used to increase the Defined Benefit pension (fixed annuity) which is lifetime annuitization. This means you have transferred the title to the 457 funds, used to make the purchase, to the Defined Benefit pension plan. In return you get an increased lifetime pension. In the final analysis it may or may not be in one's best interests to buy back. When you and your colleagues are ready to make the decision get back to us and we will do the analysis based on the individual's personal record and financial circumstances. Best wishes, Joel L. Frank

How many years are you eligible to buy back?

Don, We are almost there---how many years of service do you have in the DB plan? What is your current age? How many years of service does your plan require in order to receive a pension? What is the plan's retirement age? Best wishes, Joel L. Frank

Don, Please clarify: Do you contribute to the Defined Benefit plan? Joel

Dan, A great website. The Public Employees' Retirement Association of Colorado (PERA) places the cost of the purchase in the employee's individual account. The settlement option decision for the individual's account is made at retirement, at which time he/she can deside to effectuate a rollover or annuitize. The employee, therefore is not making any irrevocable decisions at the time of purchase. This is not the case, however, with the vast number of public plans which compel lifetime annuitization. In those situations the prior service purchase is irreversible. Best wishes, Joel L. Frank:confused:

Why doesn't the suviving spouse rollover the funds to her own 457 now? Is that permitted? Then next year she can rollover again to an IRA if she so chooses. Best wishes, Joel L. Frank

Dear Dan, Doesn't the purchase of prior service credit go to increase the defined benefit (annuitized portion) of the retirement benefit, the part of the accrued benefit that may not be taken out in a lump-sum? Best wishes, Joel L. Frank

Insofar as public DB pension plans do not allow for lump-sum settlement options, or for that matter, payout options based on life expectancy; under what circumstances would it be in the employee's best interest to use money from a 403(B)/457 to purchase allowable prior service from the governmental Defined Benefit plan? Best wishes, Joel L. Frank

Dan, You are giving tax attorneys much too much credit. An employee benefits attorney specializing in tax-favored retirement plans is the source I would rely on. Best wishes, Joel L. Frank