What happens when the sponsor of a 403(b) plan ceases to exist? What

[John A]

If these questions are too broad, please let me know and I will try to narrow the focus. When a plan sponsor of a 403(B) plan ceases to exist, who has responsibility for assets remaining in the plan? What responsibility does the financial institution holding the assets have?

[Carol V. Calhoun]

See my other message. The absence of a distribution provision for 403(B) plans upon plan termination makes the answers to all of these questions unclear.

--------------------------------------------

Employee benefits legal resource site

[John A]

Is it possible to get the assets into contracts owned individually by the participant without getting the participant's consent?

The main problem here is that a handful of employees have refused to make any election for their funds. The old entity that maintained the 403(B) plan was basically merged into another entity and so has ceased to exist. The majority of "old plan" participants transferred (rolled?) their money from the investments allowed by the old plan into the new entity's 403(B) plan.

If tbe participants refuse to return election forms, can the "old plan" money be 1)transferred to the new 403(B) plan, 2)cahnged to being an account owned by the participant, or 3) paid out in cash? Are any or all of these options definitely not possible, or are some or all possible? I realize there are no guarantees due to the lack of guidance. But what action can the trustee and/or the financial institution holding the assets take without participant election?

[This message has been edited by John A (edited 12-30-1999).]

[GBurns]

Why would there be a distribution problem if the employer terminates the plan? The assets are still in a qualified vehicle and there is no reason to move them that is caused by the termination. the only effect of termination is that there can be no more elective salary reduction contributions. I do not understand the CV Calhoun answer.

[Carol V. Calhoun]

The problem is that if a 401(a) plans ceases to allow contributions, but continues to hold assets, it is NOT considered terminated. The institution retains fiduciary duties, the plan sponsor must continue to file Forms 5500, etc. Only when the assets are distributed do these obligations cease. The question is how to apply these rules to a 403(B) plan. If the assets were in 403(B) contracts before, and remain in 403(B) contracts, are they "distributed"? And since there is no provision similar to that for 401(a) plans, allowing for distributions on plan termination, how can you consider the assets "distributed" for purposes of considering the plan no longer to exist, while not considering them "distributed" for purposes of the restrictions on early distributions?

I tend to favor the view that if you get all of the assets into contracts owned individually by each participant, you may cease to have ERISA obligations. But the absence of statutory guidance means that there are no guarantees in this area.

-------------------------------------------

Employee benefits legal resource site

[IRC401]

I'm not certain that I fully understand your problem. If the old entity was merged, it still exists as part of the surving entity. Therefore, the surviving entity is sponsoring the plan.

If the old plan provided for the purchase of annuity contracts, just let the money remain in the contracts. If the old money was in mutual funds, it can be moved to new mutual funds with or without the employee's consent.(with all of the usual caveats about fiduciary issues) It may also be possible to purchase annuity contracts from an entity affiliated with the mutual fund company.

[GBurns]

I am even more confused. What did the employees sign up for? What is their reduction amounts purchasing? The employees could not have signed up and the employer could not have been contributing money to have it sit in the General Assets of the employer. An investment vehicle must have been selected, which still exists and has nothing to do with the the plan sponsor (employer). See CV Calhoun 12/30/99.While there might be reasons to transfer money, the demise (termination, dissolution, merger etc) of the employer/sponsos is not a reason .

[Carol V. Calhoun]

If the old entity merged into the new entity, or if its assets were transferred to the new entity, then the new would generally be treated as a successor to the old one, and therefore as the same "employer." Under such circumstances, it could simply merge the old plan into the new one, and keep on going.

The regulations under 411(d) make it clear that no participant has the ongoing right to prevent changes in investment options. If the old contracts are already owned by the participants, they could be converted into individual contracts. If money is being held in an account managed by the employer or other fiduciaries (e.g., in a custodial account, the money could simply be transferred to the default option under the new plan. Either way, there would be no plan termination, so the distribution problems simply would not arise. And the employer would not have to file Forms 5500 for more than one plan.

-----------------------------------------

Employee benefits legal resource site