90-24 transfers and ERISA

[Guest mike webb]

I know that transfers are statutorily permitted from one 403(B) arrangement to another, via Revenue Ruling 90-24, and that plan documents and annuity contracts/custodial agreements can restrict such transfers. However, I am confused as to whether such transfers can be made from a 403(B) ERISA plan to a 403(B) program that is not subject to ERISA. If such transfers are permissible on their face, couldn't an employee circumvent the spousal consent rules that may apply to his/her ERISA plan by simply transferring the assets under 90-24 to a Non-ERISA arrangement (spousal consent would not be required for this transaction, since 90-24 indicates that such a transfer is not a distribution), and subsequently receive a distribution (when permissible) from the Non-ERISA account where no spousal consent is required?

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Mike W.

[Carol V. Calhoun]

Hmmm, good question! Rev. Rul. 90-24 states that, "There is no actual distribution within the meaning of section 403(B)(1) of the Code where funds are transferred from one section 403(B) investment to another section 403(B) investment if the transferred funds continue after the transfer to be subject to any distribution restrictions imposed on them prior to the transfer by section 403(B)(11) or section 403(B)(7)(A)(ii)." In theory, it would seem to me that the same principles should apply to a transfer from an ERISA 403(B) to a non-ERISA one: that the transfer should be treated as not being an actual distribution only if the funds continued after the transfer to be subject to the same spousal consent requirements as they were before the transfer. However, the revenue ruling does not mention this scenario. Is anyone aware of whether there are any private letter rulings, or more informal guidance, dealing with this situation?

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Employee benefits legal resource site

[Guest PeterGulia]

Please remember that Revenue Ruling 90-24 is only an explanation of tax law. It provides only that IF the described kind of transfer is made the transfer will not attract federal income tax. The Treasury department doesn't provide substantive rights that require anyone to provide the transfer.

An ERISA plan administrator that acts correctly won't approve a transfer to any investment option that the plan fiduciary has not approved and designated in or under the plan.

A plan fiduciary should not approve an investment option unless its contract provisions are such that the plan administrator can legally and practically enforce all of the plan's provisions (including any spouse's consent provision).

Even if a plan fiduciary (in breach of its duty) approved and designated as a plan investment option a contract that doesn't provide necessary plan administrator control, the plan administrator should refuse to approve a participant's transfer to that contract. When the terms of a plan conflict with ERISA statutory duties, the plan administrator should follow the statute. See ERISA 404(a).

An exposure to a distribution that might lack a necessary spouse's consent is, in my experience, about the simplest liability exposure an ERISA plan administrator can have.

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