New Vendor - Rollover

[waid10]

Hi, two questions:

1. We have a 403(b) Plan. We have decided to change vendors. Our new vendor is putting in place a new plan document, which we will execute. Our HR department is getting calls from financial planners saying that their clients (a few of our employees) have the right to immediately roll over their account balance. The financial planners claim that by executing a new plan with a new vendor, we are basically terminating the old 403(b) plan. I am not aware of a permissible rollover unless a participant terminates. Does anyone know?

2. So when we adopt the new plan, participant account balances are still sitting with the old vendor. The old vendor told us they have a new product coming out. However, for employees to take advantage of it, they have to roll over their account balances. It is strange to me that a participant, with money with that vendor, would have to roll money over. Any thoughts?

Any clue on these questions is appreciated.

[wmyer]

Changing vendors is not a distributable event. Presumably you still have one plan; you are simply in a multi-vendor situation. Depending on what the plan permits, 90-24 transfers from one vendor to the other would be permissible, but distributions would not be.

[waid10]

So even though the new vendor is putting in a new plan, it is not treated as terminating the old plan? I thought that would be a distributable event and permit the rollover of 403(b) funds to whomever the participant chose.

[waid10]

The new vendor is calling it an amendment and restatement of the plan (and not a termination and adoption of a new plan). How do you really tell the difference? I suppose whichever characterization you choose is what drives whether their is a distributable event or not.

Any thoughts? Please help.

[wmyer]

The proposed 403(b) regs, which cannot be relied upon, do propose to make a plan termination a distributable event for 403(b) plans. However, at present, a plan termination is not a distributable event for 403(b) plans. Whether they can in fact be terminated at the present time is questionable. But even under the proposed regs, this would not be a plan termination, because you are immediately commencing a new 403(b). Although any analogy with 401(k) plans is flawed, think about this: if you "terminate" a 401(k) plan and immediately begin another 401(k), there is generally no distributable event.

[mbozek]

An amendment and restatement is not a termination of an ongoing plan. At most it is a change of funding options. Under current regs there is no distribution event that permits a tax free rollover upon termination of a 403(b) plan. Under the proposed regs a tax free rollover would only be permitted if the er does not establish another 403(b) plan within 12 mos after termination of the existing plan. Are these financial planners annuity salespersons?