Withdrawals, transfers, distributions, rollovers ... Please help with

[Guest Lyric]

I am still trying to figure out whether my employer's ERISA 403(B) Thrift Plan (with employer match, 100% vested) permits 90-24 transfers. I have taken some trouble to acquire the full Plan (neither my Benefits Specialist nor the Plan Administrator had it to hand, which tells you something ...) but now I'm left with the task of deciphering its provisions. Let me point out that the insurance company's Plan Administrator is completely unhelpful (presumably he doesn't want me to shift money out of the Plan), and our Benefits Specialist is not knowledgeable enough or interested enough to go out and bat for me.

I'm getting mixed signals. I know one person in our office IS making such transfers every pay period, but I don't know whether he was grandfathered in, or whether he was just lucky that nobody was watching too closely when he arranged this entirely through a third party institution. So my question remains, can I do it or can't I? Is it forbidden, or just discouraged by making it so hard for me to get an unequivocal answer? Hence my scrutiny of the Plan.

Part of my confusion lies in the terminology used.

A whole section deals with "eligible rollover distributions" under which it would appear permissible to make transfers from one 403(B) plan to another. The question is, what makes a rollover distribution "eligible"?

"Transfers" are permitted explicitly between vendors, but no mention is made of asset transfers to another institution which is not on the vendor list. This is what I'm trying to effect.

Another two sections deal with "withdrawals" which seem to require a triggering event (age, disability, termination of service, the usual stuff). But when does a withdrawal become a distribution or an asset transfer -- or vice versa?

________

Here are the relevant provisions:

Section 1.8 WITHDRAWAL RESTRICTIONS

The following withdrawal restrictions will apply in addition to restrictions imposed by Sections 8.3 and 8.4 [hardship]:

A Participant may not withdraw amounts allocated to his EMPLOYER CONTRIBUTION ACCOUNTS before he attains 59½ or before he terminates employment with the Employer, unless he is entitled to a Hardship withdrawal pursuant to Section 8.4.

________

Section 8.3 WITHDRAWALS

(a) Requirements

Prior to his Benefit Commencement Date, any Participant may withdraw vested amounts allocated to his Accounts if he makes a written request ... and satisfies the conditions of (1), (2) OR (3) below:

(1) Unless otherwise indicated in Section 1.8, SALARY REDUCTION CONTRIBUTIONS made after 1988 may be withdrawn ... on the following conditions:

(A) attained 59½ of age

(B) disabled

© hardship

(D) terminates employment

(B) and © refer to procedures.

(2) Unless otherwise indicated in Section 1.8 [above], EARNINGS allocated to a Participant's EMPLOYEE CONTRIBUTION ACCOUNTS after 1988 may be withdrawn ... on the following conditions:

(A) attained 59½ of age

(B) disabled

© terminates employment

© Unless otherwise indicated in Section 1.8 [above], ALL OTHER AMOUNTS allocated to a Participant's Accounts may be withdrawn at any time for any reason. [WHAT OTHER AMOUNTS DO THEY MEAN?]

_________

So how is a withdrawal as described above different from an eligible rollover distribution or trustee-to-trustee transfer if I never actually handle the cash?

Would anybody venture a guess as to whether I can effect a 90-24 transfer from this insurance company TSA to a 403(B)7 at another financial institution? And if so, which funds I could transfer (my contributions, my employers' contributions, earnings, other?)

And if I require my "employer's signature", who would this person be? The President/CEO, the HR Director, my direct supervisor who is a VP? I'm trying to maintain a low profile here!

Thank you for your patience. Your help will be greatly appreciated.

[Carol V. Calhoun]

An "eligible rollover distribution" can occur only at a time when an individual is entitled to a withdrawal. So neither it nor the withdrawal provisions would apply to your situation. You are really stuck with the transfer provision, which sounds like it is not terribly helpful. I would suspect that indeed, no one was paying close attention when the other participant set up his arrangement.

[QDROphile]

So here is your opportunity. First, make sure that you know exactly what the plan provides. Although Carol Calhoun is wonderful, neither she nor anyone else on a message board can give you a definitive answer. Assuming that the plan allows only transfers among the designated vendors (which is a common design), politely ask for the plan to be amended to allow other transfers based on past practice of the plan in other cases (or make a big stink, depending on your personal style). There may be enough embarrassment about the oversight that you will get what you want. However, there is a very good chance that you will fail and the person who was benfitting from the oversight will be shut off. Consider the potential benefits and consequences. What are you really trying to get from a vendor?

Plans have many good reasons for limiting transfers, not the least of which is that individuals are vulnerable to sales pitches from vendors who really offer nothing much but commissions to the sales agents. If you are unhappy about the vendor options in the plan, do your homework and try to get a better vendor added to the list by convincing the sponsor of the merits. The dark side is that the sponsor probably is getting some nice back scratches from the current system or is simply paralyzed by inertia.

[Guest Lyric]

Thank you Carol and QDROphile. I rather feared that I might be stuck. I'm not crazy about my choices, but I don't think anybody will want to change the Plan. Inertia is very much what I'm facing. Besides, it's not the specific vendors I'm concerned about, it's the idea of being stuck within an annuity arrangement and not having the flexibility to manage my savings myself through more efficient investment instruments.

I realize no one can give me a definitive answer, I was looking for an educated opinion. I just wanted to be sure I wasn't missing some subtle distinctions between distributions, withdrawals and transfers.

I appreciate your thoughts on the subject.

[joel]

From http://www.benefitslink.com/articles/frank000921.shtml

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Guest Article

TSA Access Restrictions as a Bar to Rollovers

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by Joel L. Frank

Under the Internal Revenue Code prior to the Unemployment Compensation Amendments of 1992 ("UCA '92"), a distribution could be rolled over from one 403(B) tax-sheltered annuity ("TSA") to another TSA or to an individual retirement account ("IRA") only if three conditions were met:

• it was a total distribution or a partial distribution equal to at least 50% of the balance to the credit of the employee,
  
• the distribution occurred because of specified triggering events (death, disability, separation from service or attainment of age 59-1/2), and
  
• the distribution was rolled over in 60 days.
  

(IRC sections 403(B)(8)(A) through (D), as in effect prior to UCA '92.)

UCA '92 simplified the rollover rules for TSAs by eliminating the distinctions between total and partial distributions, eliminating the triggering events upon which a rollover was conditioned, and eliminating the requirement that distributions be made during a single taxable year of the employee. (See IRC sections 403(B)(8)© and 402(a)(5)©, prior to UCA '92.)

It is true that UCA '92 did not eliminate certain triggering conditions found in the Code that by their terms specifically apply to distributions from a section 403(B) custodial account or annuity contract. (IRC sections 403(B)(7)(A)(ii) and 403(B)(11).) But TSA providers continue to improperly apply those 403(B) distribution triggering conditions to the 403(B) owner's eligibility to make a rollover to another TSA. This was clearly not the intent of UCA '92!

IRC section 403(B)(7)(A)(ii), applicable to 403(B) custodial accounts, provides, in pertinent part:

(7) Custodial accounts for regulated investment company stock.  

(A)Amounts paid treated as contributions. For purposes of this title, amounts paid by an employer ... to a custodial account ...shall be treated as amounts contributed by him for an annuity contract for his employee if -- ...  

(ii) under the custodial account no such amounts may be paid or made available to any distributee before the employee dies, attains age 59-1/2, separates from service, becomes disabled ... or ... encounters financial hardship.

IRC section 403(B)(11) imposes similar conditions on distributions from 403(B) annuity contracts.

Is it not ludicrous to require a 403(B) owner to show that he or she has met one of these "paid or made available" events (death, disability, separation from service, attainment of age 59-1/2 or hardship 1/ when all the participant wishes to do is rollover the funds to another TSA that, by law, will be subject to those same "paid or made available" conditions? Is this not the very reason UCA '92 eliminated the specified triggering events of death, disability, separation from service or attainment of age 59-1/2, which previously were required for the making of a valid rollover?

This construction of the Code by TSA providers unjustly denies rollover rights. The Senate soon will take up the Retirement Security and Savings Act of 2000. This would be an ideal place to enact a clarification that the early distribution triggering conditions of Code sections 403(B)(7)(A)(ii) and 403(B)(11) do not apply to rollover distributions.

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1/ Hardship distributions are no longer eligible for rollover treatment. See Code sections 402©(4) and 403(B)(8)(B), as amended by the Internal Revenue Service Restructuring and Reform Act of 1998.

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Joel L. Frank

PO Box 148

Marlboro, New Jersey 07746-0148

(732) 536-9472

rollover@optonline.net