2 questions about forcing payouts from a 403(b)

[MR]

i have a client that has an "inactive" 403(B) plan. all of the remaining participants have terminated employment, some with vested balances exceeding $5,000, some not. since there is no real plan termination procedure for 403(B) plans, can we force these remaining participants out?

[mbozek]

Forece them out of what? The particpants already own the assets in the annuity since the plan does not have any assets (eg. there is no trust). The participants have the right to keep the amounts in their annuity contract or account. The er should just terminate the plan, file a final 5500 and provide the ee with a smm informing them that the plan has been terminated and that they have a 100% interest in the annuities. Under current law there can be no rollover upon the termination of a 403(B) plan.

[MR]

the plan has been keeping the er money in a pooled account. what's your suggestion on getting that distributed?

[E as in ERISA]

Change the investment option?

[mbozek]

How is this pooled account invested? 403(B) plans can only be invested in annuity contracts or mutual funds. (A plan maintined by a church can be invested in a retirement income account.) If the funds are not maintained in a fund permitted under 403(B) the deferrals are taxed to the participants.

[MR]

its in mutual funds. they want to rid themselves of the recordkeeping and reporting responsibility. all participants have had a distributable event and they want to force them out.

[mbozek]

I still dont understand what you are saying. Are the participants accounts invested in mutual funds under IRC 851? If so then each participant has a right to the portion of the funds which are in their account balance. Are you saying that the fund co does not know what each particpant has invested in his/her own account because the fund only reports the aggregate amt to the employer? If so the then er has the responsibility to determine each ees interest in each fund and either transfer the funds to each ees account before termination or terminate the plan and convert each ees account to a mm funds and let the ee invest/transfer the funds. Have you read the plan document? In 403(B) plans funded through mutual funds the plan usually provide that upon temination the er will purchase an annuity for the ees. Your cleint really needs to retain counsel in this matter. I recently represented a client who had a similar situation and the np had to hire an accountant to determine each participants right to amounts invested including interest.