Patricia Neal Jensen

What does the Plan Document say? It either permits this or it does not. It is not a judgment call or something that requires "approval." PNJ

Prime plus 2% is the "unofficial approved rate." Even that is probably too low for the "rate at which the participant could borrow" test.

I do not think this is a rollover or a potential rollover, nor is it a contract exchange (not about payroll slots). It is a potential transfer between vendors to this 403(b) plan. The answer should be in the plan document. If Lincoln is not listed as an Approved Vendor, you are out of luck. I think a lawyer is a waste of money. There is no "right" to transfer funds to an Unapproved Vendor. This is a decision entirely in the plan sponsor's control. There would be many aspects of the Lincoln contract that would support the plan sponsor's decision to not allow transfers or contributions to those old contracts. Excessive termination penalties would be one of them. BTW, the Lincoln people were out of line with the IRA advice. They clearly did not know what the rules were. You would like to take advantage of one aspect of an old contract that funded the plan awhile ago. I understand that, but you do not have a "right" to do this.

We are talking about an employer nonelective contribution, right? It is not exactly clear from the narrative. I agree about the "no merger." I also think you are too late to amend out an employer contribution to the 403(b), if it is not discretionary. Employees may already have the "service" which would make the ER contribution to the 403(b) an obligation for 2020. Can you remove this from the 403(b) and put the liability in another plan? Don't know the answer to that. Probably some custom drafting if this works at all. What about postponing the 403(b) termination until March 30 (or some date like that when they can get you the census etc necessary for the employer contribution calculation)? Start the 401(k) 01-01-2021 as planned. All 2021 contributions would then go in the 401(k). You would end up with a "short year" in 2021 for the 403(b) but there should not be any activity in that plan (from 01-01-2021 to 03-01-2021) except for the employer contribution and the payouts. Probably a statement of the obvious, but they started this too late. Anyone would need more than 3 weeks to get all of this done!

Humorous but the item is inappropriate for this forum.

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

Call OneAmerica. Kevin Kidwell (317-902-2847) is the man who can help you. You need someone who has done this before and they have!!

Push the vendor about the date given. Explain that they just need to hold the contributions in an interest bearing account held in the name of the Trustee. You will still have an allocation problem but the contributions will have left the sponsor's bank account and be in an interest bearing account included by the Trust. It is a mistake to let the vendor tell you what to do!

This is an investment question and most of us on here are ERISA people, not Registered Rep's. In my career, I have sold investment portfolios for retirement plans, however, and do not know of any plan which would be "required" to provide a Stable Value or Money Market fund." Do you have a DOL or IRS cite which would support this idea?

Just a small addition to this discussion: Both of the Pre-Approved document providers we use at our firm offer this option in the Adoption Agreement. Our administrators prefer it (if there is Non-Elective) because if the flexibility.

He is taxable on the distribution from the 457(b). I do not see why he could not then contribute it (or an equivalent amount as Peter Gulia suggests) to the 401(k). I suspect that he wants to "rollover" and avoid taxation on the 457(b) distribution. That he cannot do.

Anyone can google "DOL 5500" and then follow the web address to access the 5500's filed for any plan.

TIAA

Having worked for such annuity companies for years, my response would be that you must ask the ins. co. This information can change daily for new quotes and there may be change options even in an existing contract. If this is an existing contract, you can begin by looking at the contract summary sheet issued with the contract, but, again, you will probably have to contact the insurance company... or have the contractholder do it, if that is not you. Many ins. co's today will have a very low contract base guaranteed rate. It may be the state law minimum in the state of issuance. Many of these companies were badly burned during the wild inflation rates of the Carter years. (I sold one at a 17% guaranteed rate! That was the highest one I ever sold.) They are very cautious about extended guarantees unless they can "lay off" the investment return in commensurate "matching" investments right away. (see Executive Life Insolvency to find out what can happen if "matching" is not used or is improperly used.)

Be sure to remind them to tell both advisors that the investment options for a 403(b) are limited to annuities and mutual funds.

OK, Austin! And you should call me "PNJ"!! Our very best 403(b) administrator, who has several of these plans, just returned my call. She said that they just dropped the Participant count and did not change the asset number. She acknowledged that this is not quite what the FAB's say but told me that they have never had a problem with doing it this way. They have not had an IRS/DOL audit on any of these plans but have not received any inquiries regarding the 5500's as filed. Hope this helps! PNJ

Good question, austin3515! I am not an administrator but we have lots of them. I will ask one and get back to you.

This is NOT legal advice. In my 40 years in this business, much of it in the employment of large insurance company vendors, I have never seen an employee in this situation pay back the money. If you wish to continue to engage with this, I think Lou S. and ESOP Guy have given you excellent advice.

Belgarath correctly cites FAB's 2009-02 and 2010-01 as the background and recitation of the rules involved with this issue. There is no expiration time clock. Such contracts (or custodial accounts) have to have had no employer activity since before 01- 2009. That means no loan payments, no contributions, no discretionary decisions of any kind made by the plan sponsor concerning these contracts. Although not specifically required, most of such contract holders are usually terminees, so I do not understand the conversation about reporting them as a distribution now. That should have happened some time ago. And if the Participant is still employed, I don't think you have a distributable event. If these contracts (or custodial accounts) are excludable, the assets are also excludable (See Q.6 of 2010-01) I would not ask the auditor to tell you how to handle this. At 115 total accounts, with 15 excludable contracts, the auditor may be out of a job if the employer elects to exclude these contracts. This is a big price tag for your client and well worth working on. We (QBI, LLC an Ascensus company) use this whenever it is appropriate. The most common situation in which this applies in our book of business is old TIAA individual annuity contracts. These contracts have Participant control without requiring the plan sponsor to make discretionary (or any) decisions. So as long as contributions, etc ceased prior to 01-01-2009, these contracts can usually be qualified for this exemption.

It is not permissible to merge a 401(a) or (k) with a 403(b). It sounds like they were trying to maintain the 403(b) as a Non-ERISA plan. Doing this is not as simple as just not having employer contributions. We do not know from these notes whether or not this 403(b) would actually be Non-ERISA if it was audited on that point, but let's go on without attempting to resolve this at this time. These contributions, however, should not go in the same Equitable contract as the 401(a) plan. It seems at this point, that the deferrals placed in the 401(a) contract were simply "mistaken contributions." They should have been in the 403(b) and should be removed from the 401(a) and deposited into a vehicle for funding the 403(b) as soon as possible. Move the earnings, too!

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.)

C.B. Zeller correct. Cannot condition profit sharing on deferrals..... it is matching and subject to testing etc. That said, Matching can be discretionary so I do not understand what the big deal is to the plan sponsor about the difference between Matching and PS. Add a Discretionary Match to the Plan and adopt a Board Resolution that says that it only applies to NHCE deferrals as follows: Deferrals from 1% to 3% are matched 200% on the dollar; Deferrals from 3% to 5% are matched 100% on the dollar; deferrals from 5% to 10% are matched 50% on the dollar. You will still have M testing, of course, but the goal for this idea should be to knock the lights out at the lower levels.

All the above is good advice. I would emphasize that a Hardship withdrawal has immediate and negative tax consequences (again ignoring the COVID19 rules). You will be taxed and penalized for the amount of the Hardship and in some states you will also pay a state penalty in addition to the state tax and the federal tax and penalty. I often tell Participants who ask, that they will "lose" around 60% of the amount to taxes and penalties in a Hardship withdrawal situation. Loans are much better. You would normally not have to give a reason for a loan (some plans require this but not all) and it is not taxable when you take the money out of the plan. You will only pay taxes and penalties if you default. IRS.gov/newsroom/relief- for- taxpayers-affected-by-Covid-19-who -take-distributions-or-loans-from retirement- plans will take you to an IRS News site that has fairly readable information on such distributions if they relate to the application of the new Covid19 rules. It will help you understand what we are referencing and may make a good copy to take with you when you talk to your HR person. The best of luck to you.

BG 5150: "DOL Advisory Opinion 85-32 determined that a church plan was non-electing despite the fact that a plan administrator had filed a 5500 for two years.... An election...can only be made by the plan administrator attaching a statement to either (1) the annual return (filed 5500),... or (2) a written request for a determination letter relating to that specific plan. The statement must state that the election is made under Code Section 410(d) and state the plan year for which it is effective." (Treas. Reg. Sec. 1.410(d)-1-(c))