403(b) to 401(k)

[Guest RAA]

I have a current 403(B) client who has been told that they are able to convert the 403(B) to a 401(k). Is there pending legisation that would allow this?

[actuarysmith]

I am not aware of any pending legislation to allow this.

Non-profits can now sponsor a 401(k), but plan conversion is an entirely different matter.

Further, after doing some research on 403(B)s, it turns out that plan termination does not constitute a distributable event under a 403(B) like it does on most other retirement plans.

This means that an employer cannot "terminate" a 403(B) and allow participants to rollover funds to the 401(k).

Now that EGTRRA allows 403(B) rollovers to 401(k)s, it appears that this will only apply to participants with a 403(B) balance at another employer.

[Carol V. Calhoun]

This has been one of the most common misconceptions about the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), the 2001 pension legislation. EGTRRA allows rollovers from 403(B) plans to 401(k) plans. However, a rollover requires a distributable event (e.g., severance of employment). EGTRRA allows transfers of amounts from a 403(B) plan to a 401(a) plan (a) only if the receiving plan is a defined benefit plan (i.e., a 401(k) plan would not be an acceptable receiving plan), and (B) only for the purchase of service credit (rather narrowly defined under the statute). Thus, EGTRRA does not, contrary to what many believe, allow for a 403(B) plan to simply be converted into a 401(k) plan.

[Guest RAA]

Thanks to both of you.

That was my understandin. I just wanted to be sure I hadn't missed anything.

[Guest Tom Fridrich]

Does your answer to this question change if the employer made contributions to the Plan. I have a person claiming that if the employer makes contribtions to the account, the Plan is employer controlled and can be converted to a 401(k) Plan. He claims to have done this in the past with no regulatory problems. I am not aware of anything that supports this position, but am not aware of anything that denies this position. Your thoughts would be greatly appreciated.