Terminating a 403(b) Plan and starting a 401(k) Plan

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Is it possible to terminate a 403(b) plan in the same year you start a 401(k) plan (i.e. would the 401(k) plan be considered a successor plan)? Also, it is my understanding you cannot directly transfer the assests from a 401(k) plan into a 403(b) plan. Does that hold true for a direct transfer of 403(b) assests to a 403(b) plan?

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Need to revised my question:

Is it possible to terminate a 403(b) plan in the same year you start a 401(k) plan (i.e. would the 401(k) plan be considered a successor plan)? Also, it is my understanding you cannot directly transfer the assests from a 401(k) plan into a 403(b) plan. Does that hold true for a direct transfer of 403(b) assests to a 403(b) plan?

[Guest Kevin1]

Along the same line of thought: Can you start up a 401(k) plan and merge the assets from a 403(b) into it?

[John Feldt ERPA CPC QPA]

Under the Final 403(b) regulations, you could terminate a 403(b) plan - I think you'd have to adopt the Final 403(b) regulations though in order to do that. Also, I recall reading that a 401(k) plan would not be considered a successor plan to a terminated 403(b) plan.

If the 403(b) terminates, the participants could then vountarity elect to roll over their 403(b) balances into the 401(k). I don't think a merger, requiring the assets to go to the 401(k), would be allowable.

"...you cannot directly transfer the assests from a 401(k) plan into a 403(b) plan. Does that hold true for a direct transfer of 403(b) assests to a 403(b) plan?"

I think a merger of 403(b) plans is allowable, if that is your question.

[TLGeer]

J4FKBC's got it right.

Termination-reestablishment rules for the 403(b) allow the 403(b) to permit distributions on termination.

No plan mergers between 403(b) and qualified plan, but you can merge 403(b) plans.

May I ask why they're doing this? It's generally not a very good idea, unless you like the ADP test or are cpncerned about hardship availability on employer money. And once you do it, it's very hard to shake the 401(k), because termination-reestablishment rules for the 401(k) don't allow termination/rollover from he 401(k).

Part of what I end up doing here is dealing with this kind of decision and its adverse consequences. Having both ain't a bad thing, on the right facts, but if you have to have just one the general rule is go for 403(b).

Tom Geer

[Bird]

I understand and agree with TLGeers' points, but if they happen to not matter for a particular plan or the sponsor wants to barge ahead anyway, if you terminate a 403(b) plan, what exactly does that mean (with respect to individual annuity contracts)?

Does each individual have the right to "do" something with his or her contract, whether it is surrender, roll to a new plan, or roll to an IRA? Considering that the contracts are just sort of "out there" without much if any supervision by the employer, does the employer tell the investment company "oh yeah, the plan is terminated, deal with it" or ...?

Thanks/sorry if I am naive in this area.