90-24 transfers

[Guest Lyric]

First of all, what is the difference technically between a 403(B) Thrift Plan and any other 403(B) plan?

Secondly, I don't like the investment choices provided by the insurance company we are contracted with (annuities). Is it permissible by law to transfer contributions from my employer's 403(B) Thrift Plan to a different financial institution (as a trustee to trustee transfer, either into a traditional IRA or perhaps a self-directed 403(B) plan)?

I would not be eligible for a so-called 90-24 transfer because there is a small employer match (3%), but I would be vested immediately. If I'm significantly better off with a different institution, I might be willing to forego the 3% employer match.

I'm trying not to tie up my contributions in annuities. I was thinking of opting for a money market fund simply to hold my contributions prior to transferring them elsewhere on a regular basis. There seem to be no surrender fees, but the insurance company's booklets and prospectus don't actual mention transfers between institutions, only transfers between investment alternatives that they hold.

Your thoughts?

[Carol V. Calhoun]

"Thrift plan" typically means a plan that provides for an employer match of employee pretax deferrals.

As far as making transfers, it depends on the employer's policy, the terms of the relevant contracts, and (if the contract is an annuity contract, or the employer is a governmental entity) applicable state and local law. Although the Internal Revenue Code permits an employer to allow plan-to-plan transfers, it does not require an employer to make them available.

[Guest Lyric]

Thank you Carol.

[Guest Lyric]

I'm now eligible to participate in my employer's 403(B) Thrift Plan (a non profit organization, not a school district). I'm very unhappy with the idea of being stuck with annuities or even variable annuities (I don't need the insurance component), and am thinking of tranfsferring my contributions out of the Thrift Plan into a traditional IRA or a self-directed 403(B) plan at another institution.

We do benefit from an employer match: 50% of the first 6% of contributions. Not princely, but free money. I gather that the employer match rules out a 90-24 transfer. But what if I transferred a significant portion of my own contributions but not the employer match? I have to leave something in the original plan anyway to keep the account open.

What are the rules governing employer matches and 90-24 transfers? And what does 90-24 signify anyway (just curious)?

I'm aware that I need to find out what impediments there might be within my employer's plan.

Thank you.

[Appleby]

90-24 refers to a revenue ruling that permits a participant, who has not separated from service or reached age 59-1/2 to change investments within by transferring from one 403(B) provider to another. The employer is not required to comply with this ruling.

90-24 has nothing to do with employer matching contributions. If your employer permits you to transfer your 403(B) account to another provider, then your employer may send your contributions, deferral and matching , to your account at such provider

[Carol V. Calhoun]

Here is a link to the full text of Revenue Ruling 90-24. As you will see, the ruling governs the tax consequences if a transfer is made, but does not give the employee a right to receive a transfer not permitted by the employer or by the relevant contract.

[joel]

Note, Revenue Ruling 90-24 is not limited to in-service employees younger than 59 1/2. All employees regardless of employment status or age may utilize the Ruling. In fact, because IRS reporting is not required, it is the method of choice for effectuating tax-free distributions among 403(B) funding mediums.

[Guest Lyric]

I'm curious as to why I was led to believe that the 90-24 ruling did not apply if an employer match were involved. I've read a number of articles on the subject of 403(B) transfers, specifically with regard to annuities, but perhaps it's a different kind of restriction at issue. Maybe it's the way the point was expressed. Any ideas anybody?

(I did read the IRS ruling, but I can't be sure I didn't miss something.)

[Carol V. Calhoun]

The only thing I can think of is that among private (not governmental or church) employers, employer involvement is typically a lot less in the case of a pretax-employee-contribution-only plan than in the case of a plan that has an employer match. (An exemption from ERISA is available in the case of certain pretax-employee-contribution-only plans with limited employer involvement.) Thus, while Revenue Ruling 90-24 is available for either type of plan, a plan with an employer match is more likely to have transfer restrictions.

[Guest Lyric]

So you're suggesting that it's the plan itself that may restrict these transfers, not the IRS through 90-24. I wanted to be sure I knew what was what on the official front before trying to make my case to my benefits department.

Thank you.

[Carol V. Calhoun]

It could be the plan document, or it could be the contracts for the investments (e.g., mutual funds or annuity contracts) in which the plan invests. However, Rev. Rul. 90-24 would not by its terms prohibit such transfers.

[joel]

RR 90-24 does not differentiate between a salary reduction only plan from one that includes an employer match. Any and all restrictions from effectuating a 90-24 transfer comes solely from the Plan Document and not the Ruling. It is the rare salary- reduction-only-plan that places restrictions on a 90-24 transfer. On the other hand, it is the rare employer-match-plan that places no restrictions on a transfer.

Peace,

Joel L. Frank