90-24 transfer rule

[Guest yanfan]

I am a public school teacher in New Jersey who has used the 90-24 transfer rule for many years. Most districts in our state, as in others, only offer high expense, low return variable annuities. The transfer rule allows me to periodically move money to the vendor of my choice. Is the proposed eliminaton of this rule "set in stone?" While many positive changes may come from changing the regulations and making the 403b similar to the 401k the elimination of this rule hurts thousands of people. If the school districts do not offer a low cost mutual fund or annuity in their plans employees will be stuck with poor investments which are incredibly over priced. What is the rationale in eliminating this option? Thank you

[saabraa]

I would characterize the rule change as being "set in stone." IRS issued proposed regulations on 11/16/04, in regard to section 403(b) plans. You might try looking for Federal Register, Vol 69, #220. For most employers (looks like that includes government employers), the rules are effective as of 2006 "tax year." Although there is language in the new regulations that talks about not being able to rely on these new proposed regs until they become final, when all is said and done the employer will use the proposed regs as a guide and not much can be done about it. Well; there's probably an address mentioned in the regs, and you can send comments in hopes of seeing the restoration of the old rule in the future final version of the regs. (Sometimes, it can be a while before final regs come out). I didn't see 94-25 transfers mentioned in so many words, but the preamble to the proposed regs as well as proposed reg. section 1.403(b)-10 speak in terms of which transfers will continue to be allowed. Basically, the recipient investment must be an investment option of another 403(b) maintained by an employer for whom you work.

As regard to logic, I usually don't even try to find it. Often, such an endeavor can cause headaches. Back in the day when I had the time and the will for a few such searches, I was usually surprised that there was solid logic at the end of a long and twisting trail. Maybe you nailed the crux of it. The rules are being changed to make retirement plans more homogenous (sp?). It's getting easier and easier to put money into the plans, but it's still limited as to the occasions for getting the money out.

[MWeddell]

The proposed 403(b) regulations will not be finalized until 2006, effective most likely January 1, 2007. I would assume that most providers will continue to process 90-24 transfers to the same degree they always have. Your employer's plan has to allow these transfers to occur.

Unofficial comments from key IRS officials indicate that they currently are leaning toward keeping a general ban on 90-24 transfers but may introduce some exceptions.

The IRS perceives that allowing these transfers makes it more difficult to monitor whether a 403(b) plan is in compliance. I don't agree with their view, but there is some logic behind it.

[saabraa]

I'm not ready to agree that the employer MUST allow a 90-24 transfer; I've been under the impression it's one of those MAY allow deals. Based on several phone conversations over the years from around the country, many employers are not allowing the transfers. As I recall, it seems that assets held by TIAA-Cref were particularly likely to be subject to a preclusion regarding 90-24 transfers.

[Guest gdburns]

Isn't a 90-24 transfer more an option from the investment providers than it is from the employer?

If most 403(b) are participant directed contracts, How would the employer prohibit a transfer even if they knew about it? I do not remember there being any employer notification or employer approval forms.

In the employers that I have worked with, there is no way for the employer to know that a transfer was done. They could assume that since contributions were stopped to a particular provider and a contribution started with another, that a transfer might have taken place. But since a large number of transfers occur with "frozen" accounts for which there are no current contributions, this would not even apply.

I thought that the CREF situation was settled back in the late 1980s after the Association of College Professors (or similar name) successfully sued.

What do you remember Joel? We had 2 threads that touched on this CREF issue sometime last year.