403(b)/401(k) Conversion

[joel]

POST YOUR 403B QUESTIONS, THOUGHTS AND COMMENTS...

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Subject: Convert 403b to 401k

Author: Brad

Date: 10/17/2001 11:18 am PST

I am a third party administrator who is trying to consult a client on the advantages of switching their company's entire retirement plan from a 403(B) structure to a 401(k) structure. I am not dealing with an individual participant who wants to roll their money into a 401(k); I am talking about restating the entire Plan to switch it's structure over to a 401(k).

Do you have any advice or information that would be beneficial to me in this endeavor? What I am really looking for is a precise comparison chart (or something of that sort) that I could use to communicate the advantages or disadvantages of making the switch.

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Convert 403b to 401k

Brad 10/17/2001 11:18 am PST

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[Carol V. Calhoun]

Could I ask that you have the original poster post here? That way, he can elect to be notified when there are new messages here, rather than having to have e-mails sent to him. One of the advantages of the message board format is that everyone, not just the original poster, can benefit from any replies.

Thanks!

[Guest lforesz]

Hi, I am really interested in this topic as we have are facing a similar situation. Does anyone actually have any comments on the topic? We are not sure if this is considered a merger of a 403(B) plan into a 401(k) plan or just an amendment to switch from a 403(B) plan to a 401(k). The protection of beneifts worries us, but maybe just because we are not familiar with 403(B) plans.

Any thoughts on this would be greatly appreciated.

[Carol V. Calhoun]

Even if putting new money into a 401(k) plan is permissible, it is not clear to me that you can modify a 403(B) plan with respect to the old money to make it into a 401(k) plan. Although the new law permits rollovers of money from a 403(B) to a 401(k), a rollover requires that there be a distributable event, and the termination of a 403(B) plan is not in itself a distributable event. That leaves the question of whether the money could be directly transferred from one plan to another at a time when no distributions/rollovers could be made. The only direct transfers permitted under the new law from a 403(B) to a qualified plan must be (a) to a defined benefit plan, and (B) for the purchase of service credit. Thus, a transfer to a 401(k) plan would not qualify.

[Guest Seaman]

I am curious if the 403b is a Annunity Contract underwritten by an insurance company, or a 403b(7) Mutual Fund- the question being are you trying to escape Mortality and Expense charges that seem useless or to costly to plan participants as the financial justification for redesigning the plan ? What are the cost benefits, investment options gained for your client and the plan participant ?

[Guest brstokes]

Is it possible for a plan sponsor to stop contributions into the 403(B) plan and create a 401(k) plan.

Then request that the participants roll their 403(B) balances into a IRA. After a period of time (1 day, 1 week or 1year???) then roll the IRA into the new 401(k) plan?

Barry