403(b) successor plan?

[Guest mike webb]

Is a 403(B) plan considered to be a "successor plan" for purposes of the rules applicable to distirbutions from 401(k) plans upon plan termination (Reg 1.401(k)-1(d)(3))?

[Carol V. Calhoun]

Probably, at least in the case of a "plan" within the meaning of the Department of Labor regulations. The regulation states as follows:

A distribution may not be made under paragraph (d)(1)(iii) of this section if the employer establishes or maintains a successor plan. For purposes of this rule, the definition of the term "employer" contained in paragraph (g)(6) of this section is applied as of the date of plan termination, and a successor plan is any other defined contribution plan maintained by the same employer.... The term "defined contribution plan" means a plan that is a defined contribution plan as defined in section 414(i), but does not include an employee stock ownership plan as defined in section 4975(e) or 409(a) or a simplified employee pension as defined in section 408(k).

Code section 414(i) defines a defined contribution plan as follows:

For purposes of this part, the term "defined contribution plan" means a plan which provides for an individual account for each participant and for benefits based solely on the amount contributed to the participant's account, and any income, expenses, gains and losses,  and any forfeitures of accounts of other participants which may be allocated to such participant's account.

Although it might be argued that section 414(i) should be considered to apply only to 401(a) plans, the fact that the regulation considered it necessary to exclude simplified employee pensions (which are not 401(a) plans) suggests that any defined contribution plan (including a 403(B) plan) would be treated as a successor plan.

It might be possible to argue that a salary-reduction-only 403(B) arrangement that met the DOL standards for not being considered a "plan" could therefore not be a "successor plan." However, I have not seen anything on this, although I have not specifically researched the issue.

And before you say anything, I realize that this rule does not really make sense with regard to a 403(B) plan. The whole idea was that a distribution could not be made upon plan termination if there were another plan to which the money could be transferred. Money cannot be transferred in-service from a 401(k) plan to a 403(B) plan. But I think that the statute by its terms would treat a 403(B) plan as a successor plan.