59 1/2 Rollover

[Guest scottyd]

Is an employer required by law to allow an employee to rollover his/her 403(B) at age 59 1/2? This is assuming the employee still works for the entity.

[mbozek]

no- An employer is not even required to provide for a lump sum payout at retirement. Some 403(B) annuities only permit periodic payments.

[Ellie Lowder]

I am not aware of any 403(B) annuities that permit only periodic payments - only about 1% of participants today annuitize - instead, the 403(B) annuity (or mutual fund, of course) is used for systematic withdrawals - random lump sum needs.

Of course, we might see that change with growing life expectancy!

[mbozek]

Yo Ellie: You ever hear of Tiaa/Cref- They have $300B in retirment annuity money much of it in individually owned 403(b)retirement annuity contracts which provide only for lifetime annuity payments to the employee. Lump sums are paid only if the employee dies befire commencing benefits. The non cash value provision of the contracts has been upheld many times in laws suits by disgruntled participants. An employer can elect to permit the employees to recieve a lump sum value by establishing a group annuity contract (but cashouts are made in installments over 10 years for TIAA contacts to limit disintermediation risk). Considering that TIAA has about 50% of the 403(B) business and provides participating annuity contracts which increase the payout each year I think the level of annuitization is much higher than 1%.

[Ellie Lowder]

Yep, I have. The CREF portion (equity options) are both cashable & transferable - the fixed portion (TIAA) is quite often tax-free transferred over the 10-year payout period to other annuities or custodial mutual fund options that permit flexibility. However, I do stand (sort of) corrected - how could I overlook the biggest? Bad day, I guess.

The voluntary TSA portion does not have the limitations that the employer matching program has.

[mbozek]

The cashout ability only applies to group contracts, not individual contracts in which the employer contributes for both TIAA and CREF. Funds cannot be transferred from the individual to group contracts. The employees usually make contributions to separate individualy owned contracts called tax deferred annuities because the TIAA TDAs allow loans and hardship withdrawals. Loans are not allowed on CREF contracts.

[joel]

It is interesting to note that prior to the late 1980s the primary Tiaa - Cref 403(B)1 annuity contract (the one that the employer helps to fund) only provided for lifetime annuitization even if the participating employer was agreeable to offering a lump-sum settlement. (The salary reduction 403b contracts always allowed for lump-sum settlements.)

In the late 80s the leadership of Tiaa-Cref finally succumbed to pressure from some groups and granted the option of lump-sum settlements provided the participating employer's plan was amended to allow for such an option. Today there are numerous participating institutions (public and private) who have adopted plan amendments to give this option to their employees. In my view this never would have taken place if not for the enactment in 1974 of section 403(B)7 authorizing mutual funds as an alternative funding medium.

Scotty, are you referring to the primary contract or the salary reduction one?