403b Force-outs

[Guest PIA]

Employer is wanting to change providers but finds current individual annuity contracts have surrender charges. Employer is willing to reimburse for surrender charges for current employees but not terminated employees. What are the considerations on surrender charge reimbursements and how can former employee accounts be handled?

[ERISAnut]

Who is in control of each contract? Is it the participant or the employer? In many 403(b) arrangements, the participant selects the custodian for his/her individual account. Yet, in others, the employer selects a designated service provider for the entire employee base. Both are options but it often helps to define this arrangement up front.

In any event, it would not hurt the employer to simply begin funding the plan, prospectively, to the new accounts established with the new provider. From here, there is not need to pay any surrender charges and each partipant will be able to transfer the account once the surrender period expires.

[GBurns]

Much more info is needed.

If there are no employer contributions and the contracts are owned and funded by the employee, Why does it matter if the employer changes vendors?

In fact, Why would the employer want to change vendors rather than just add additional vendors?

Why not freeze these vendors and start new accounts with the new vendors?

If the plan currently has no employer contributions etc, How is the employer going to account for the reimbursement? The employer cannot just start putting in money if the plan was not set up to allow employer contributions.

[Guest PIA]

Much more info is needed.

If there are no employer contributions and the contracts are owned and funded by the employee, Why does it matter if the employer changes vendors?

In fact, Why would the employer want to change vendors rather than just add additional vendors?

Why not freeze these vendors and start new accounts with the new vendors?

If the plan currently has no employer contributions etc, How is the employer going to account for the reimbursement? The employer cannot just start putting in money if the plan was not set up to allow employer contributions.

GBurns,

Thanks for your response. This plan was origianlly a 403b(7). Employer changed to get more local representation and rep changed the plan to individually owned variable annuities that are subject to surrender charges under a 403b(1) arrangement. Employer became disillusioned and now wants to put it back to a 403b(7). Approximately six employees have terminated during this period and still have balances in the individual contracts. Employer is willing to reimburse on surrender charges for current employees only.

It is my understanding that an employer cannot maintain a 403b(7) and 403b(1) at the same time. All current employees are wanting to transfer to the new arrangement, but what can be done with the terminated employees? Thanks.