403(b) takeovers

[FJR]

Is it me or is taking over a 403(B) nearly impossible? I am not an expert in the 403(B) arena, but have taken over 100's of 401(k) plans and have never found any problems like we are having with this plan.

In my opinion, 403(B) plans were designed to never give participants the freedom of investment choices. The only one who benefits from these arrangements are the insurance companies who service them. You can't get answers, they most don't know a thing about the product, they are extremely expensive from all the crap they put into these annuity contracts and more importantly they prohibit you from leaving.

Is there anyone out there who knows how to actually go about taking over a 403(B) plan? My conclusion is to start a 401(k) and avoid all these pitfalls. I would like to be able to speak directly if possible.

Thanks.

[mbozek]

403(B) plan are different from qualfied plans because they have no assets- all assets re held in an annuity or custodial account owned by the employee. I dont know what you mean by taking over a 403(B). There is no way to transfer the assets of a 403(B) annuity to a 401(k) plan.

[FJR]

What I mean by takeover, is the client wants to make a change. They are tired of poor service, hidden fees and charges, doing to much of the work themselves, etc. etc. But, because they have been with this insurance company for many years, they make it difficult to change.

They would like to have regular mutual fund investments. The current arrangement seems to indicate that there are two plans. One simply reads Defined contribution pension plan. Employer puts in a fixed percent of pay and asset are invested in units of variable annuities. Looks like they mantain the participant accounts. The other is a tax deferred annuity plan. Employee puts there pay directly into seperate account issued by the insurance company.

The difficulty seems to be in the tax deferred annuity plan. Doesn't seem like you can do anything with that money, other than leaving it where it is. So if the client wants to rid themselves of this Insurance co. They can't

We administer plans that want to invest in mutual funds. We recordkeep with an ominibus account. So if we want to park the money with Schwab as an example, 403(B) accounts don't work. They have to be set up individually. So if they want to leave, they need to find some other company that will set up individual custodial accounts and it would have to be someone who excepts little tiny balances per individual. Not to many out there that will and they don't want to go back to Annuity accounts.

Doesn't seem right?

[mbozek]

Money that is in a 403(B) annuity can be transferred to another 403(B) funding vehicle under Rev. Rul 90-24 with the participant's consent provided that restrictions on withdrawal are adhered to. There is no way the accounts can be administered in the same way as a qualified plan because there is no trustee who controls the assets as there is in a qualified plan.

[FJR]

mbozek,

Is it possible for the employer to terminate the plan? Again this is listed as a Tax Deferred Annuity Plan. If they can terminate it, then what would prohibit the assets from being liquidated and rolled over to let say a 401(k) plan.

Just from the Investment arrangement alone, would I feel strongly that 401(k) plans are better than most 403(B) arrangements.

[Mike Preston]

You can terminate the 403(B) arrangement. If you do, then no new monies will be deposited. However, termination of the plan is not a distributable event, so there would be no ability to remove the monies and roll them into any other place.

[FJR]

Mike, so what you are saying it that the termination process is just a formality to not deposit future deferrals into the annuity plan.

So no matter how bad the situation is, the Insurance company gets to keep the money. Typical.

[Mike Preston]

No, as mbozek said, you can arrange to have a substitute resting place for the monies. If you do, and the participants are given the option of moving, then you have done all you can do.

[mbozek]

If the 403(B) plan is terminated the participant's only option is to transfer their account balance to another annuity contract or custodial account as a tax free transfer under Rev. Rul 90-24. There is no provision for a rollover to an IRA or a qualified plan.

[Guest LVanSteeter]

Try making contact with the MF companies that handle 403(B) arrangements (Fidelity, TIAA-CREF, etc.).

You may be able to convert the whole plan from the insurance company to one of them. Recordkeeping agreements and companies change all the time.

[FJR]

Is there a formal termination process like a qualified plan when dealing with these individual annuity contracts?

Just doesn't seem right that there is no provision to rollover to a qualified plan. Written poorly in my opinion.