Termination

[Randy Watson]

The regs state that termination and distribution of participant accounts prior to the effective date of the regs is permissible if the contracts are updated to comply with the final regulations. The plan I'd like to terminate has a plan document. Other than adding a provision that allows for distributions upon termination, does that document have to comply with the final regs or can we terminate "as is"?

[Guest B2Randolph]

Sorry to be the bearer of bad tidings, but until 1/1/09 or later, you can not "terminate" a 403(b) plan. Plan termination is not an eligible distributable event in a 403(b) plan. At this time, you can only freeze the plan and terminate it later.

We sometimes "remove the employer discretion" from our ERISA plans, meaning the Employer no longer has any control over the plan, reverting it back similar to a pure non-ERISA Tax Sheltered Annuity. After that we stop filing 5500s.

[Randy Watson]

Sorry to be the bearer of bad tidings, but until 1/1/09 or later, you can not "terminate" a 403(b) plan. Plan termination is not an eligible distributable event in a 403(b) plan. At this time, you can only freeze the plan and terminate it later.

We sometimes "remove the employer discretion" from our ERISA plans, meaning the Employer no longer has any control over the plan, reverting it back similar to a pure non-ERISA Tax Sheltered Annuity. After that we stop filing 5500s.

B2, This is from the preamble of the final regs:

"For periods following July 26, 2007, and before the applicable date, taxpayers can rely on these regulations, except that (1) such reliance must be on a consistent and reasonable basis and (2) the special rule at §1.403(b)-10(a) of these regulations permitting accumulated benefits to be distributed on plan termination can be relied upon only if all of the contracts issued under the plan at that time satisfy all of the applicable requirements of these regulations (other than the requirement at §1.403(b)-3(b)(3)(i) of these regulations that there be a written plan)."

[Guest Nolanquinn]

I am under the impression that the non-ERISA plans may be terminated prior to 1/1/09, but with two major caveats: 1) the written plan document must comply with the new regulations (a previous plan doc may not meet that criteria) and 2) All contributions to the plan throughout its entire history must be liquidated or moved to a different account. This provision will be nearly impossible for most employers to meet as they would have to track down any former employees that may have contributed to the plan and still have funds in the plan. In addition, you will have to convince all current employees to move to a different plan that would be acceptable to the IRS which will severly limit that options that they will have to choose from since they will not meet the criteria for distribution in most cases.

Darren

[Bird]

2) All contributions to the plan throughout its entire history must be liquidated or moved to a different account. This provision will be nearly impossible for most employers to meet as they would have to track down any former employees that may have contributed to the plan and still have funds in the plan. In addition, you will have to convince all current employees to move to a different plan that would be acceptable to the IRS which will severly limit that options that they will have to choose from since they will not meet the criteria for distribution in most cases.

As you note, it will be "nearly" impossible (I believe the word "nearly" should be dropped) to track down all of the individual contracts, and because the contract is between the employee and the investment or insurance company, it is impossible for the employer to force the employee to do anything. I've heard different players say "we're hoping for more guidance" and also "the IRS and DOL probably aren't going to give any more guidance on how to deal with this." There is a school of thought that says you will have terminated the plan and "distributed" the contracts if the employees can do whatever they want with them. Presumably, you notify the investment or insurance company that the plan is terminated and then the 'ees can cash them in, roll them over, or leave them be. With the new 5500 reporting requirements for ERISA 403(b) plans bearing down on us, this sounds pretty good, if it is viable.