403b distributions

[Guest JMar]

Plan Sponser wants to establish a new 403b plan...

In designing the distribution options... Does the option to payout as annuity HAVE TO be an option or could the plan simply offer Lump Sum and Partial withdrawals only? If an annuity does need to be offered as a choice, does there HAVE TO be a J&S Annuity?

Thanks

[Guest PGH.ERISA]

I don't believe that an annuity must be offered, although most 403(b) providers would want to be selling annuities to their clients. If you do offer an annuity, you would have to at least have an SLA and a QJSA. Any other thoughts out there?

[John Feldt ERPA CPC QPA]

FWIW, I agree that you are not required to offer annuities as an optional form of payment.

[jpod]

A question that has plagued me (slight exaggeration) for years: Assume the 403(b) plan is subject to Title I of ERISA. Unless it is a "profit sharing" plan, it is subject to the J&S requirements. Is it a profit sharing plan? Anybody ever seen any DOL guidance on this (it's not really an issue under the jurisdiction of the IRS).

[Everett Moreland]

If the 403(b) plan is funded by an insurance company annuity contract (as distinguished from a mutual fund custodial account), the final 403(b) regulations require the plan to offer an annuity. See the following from 1.403(b)-2(b)(2):

"Annuity contract means a contract that is issued by an insurance company qualified to issue annuities in a State and that includes payment in the form of an annuity."

As to whether an ERISA 403(b) plan is a profit sharing plan and so not required to offer a QJSA, I've seen no DOL guidance. A 1995 CCH publication (Working with Tax Sheltered Annuities, Report 1066, Issue No. 1130, July 14, 1995, Extra Edition), states, on page 13:

"TSAs are generally money purchase plans . . . and, accordingly, are . . . subject to ERISA Sec 205 [which has the QJSA rules]."

What I have done is state in the plan document that the 403(b) plan is a profit sharing plan. This works for qualified plans, so I assume it works for 403(b) plans.