403(b) termination/freeze

[Guest jnates]

Has anyone terminated a 403(B) plan? I understand that it is not a termination as in the case of a 401k since plan assets are already in participants accounts, etc.,

I have one and am going to get a board resolution to stop contributions from employees and employer matching. This freezes it, but we have folks who have termnated employment several years ago still listed in the plan by the broker. Also do we still have to file 5500 after we discontinue.

[mbozek]

You need to file a final 5500 and provide a summary of material modifications and a 204(h) notice if the plan is a money purchase type plan. I dont know what happens to participant's custodial accounts after the termination - check the custodial agreement. I presume if the plan is being termined and no fees are being paid to the custodian there will be some type of distribution which can be rolled over. The annuity contracts have been distribtuted to participants.

[Ellie Lowder]

mjb, have you seen something new on the termination of a 403(B) plan? We have long awaited IRS guidance for the termination of 403(B) plans, but, unless something has been issued very recently, we have none. In the absence of guidance, my understanding is still that termination is not a qualifying event for distributions - and, that the ERISA requirements will still apply until such time as participants otherwise become eligible for a distribution.

[mbozek]

E: account balances of terminated participants can be rolled over to an IRA. Also 403(B) plans with custodial accounts provide that upon termination of the plan, account balances will be transferred / "rolled over" to an annuity contract via a 90-24 exchange.

[Ellie Lowder]

What is the new guidance that permits amounts to be rolled over using plan termination as a qualifying event?

Yes, I know that 90-24 transfers are permitted; however, that doesn't appear to be relevant to the removal of the assets from the plan.

Thanks!

[mbozek]

No assets are removed from a 403(B) annuity plan because no assets are held in trust. Amounts in a custodial account are considered to be invested in an annuity under IRC 72 owned by the participant. The account balances are held by a custodian for the participant who is the owner, similar to an IRA account. Upon termination of the plan the participant can either find another financial institution who will act as custodian or transfer the funds to a 403(B) annuity contract under the provisions of Rev. Rul 90-24. A participant cannot require a financial institution to continue as custodian after the plan is terminated by the sponsor and no further fees will be paid to the custodian.