Merger of 457(b) Plans

[Guest lrusso]

Is is permissible to merge two 457(b) plans maintained by one tax-exempt employer into one 457(b) plan without triggering adverse tax consequences to participants? There is no severance of employment of participants, therefore the 457 regs regarding transfer of assets would not be satisified. Any thoughts on whether a merger would be permissible when the corporation remains the same (no acquisition or divestiture) and there is a 457(b) merger with participants continuing in employment? It is unclear to me whether 457 regs on transfer of assets also intend to cover plan merger situations.

[Everett Moreland]

If this is for a tax-exempt (not a government), the plan has no assets so there are no assets to transfer or merge.

[Guest lrusso]

Thank you for your comment. Very good point. My only uncertainty is that the 457 regs address post-severance plan to plan transfers of amounts deferred among eligible plans of tax-exempt entities (Treas. Reg. 1.457-10(b)(5)). The situation I am dealing with does not meet the provisions of 1.457-10(b)(5). Our thought was to combine the plans (and amounts deferred) into 1 account per participant, but we don't want to trigger a taxable event by doing so. Was curious on others thoughts on this issue. Thanks again.

[Everett Moreland]

1.457-10(b)(4) deals with transfers between plans of the same governmental entity. 1.457-10(b)(5) does not include a comparable provision for tax-exempts. I think the reason is there are no assets to transfer and so the regulation on transfers need not be complied with. I agree you can do what you propose.