403(b) TPA is pushing for company to switch to 401(k)

[Lori H]

a current self directed 403(b) plan, which offers 3% qnec across the board as well as employee deferrals, is being told by their provider to shut down the 403(b) and to move to a 401(k). Alternatively, they are saying if they want to stay 403(b) that they will have to close out the current 403(b) that is not pooled and open a pooled 403(b) account and that they have until June to update for new 403(b) regs. Some supervisors are worried about the employees understanding this.

Any thoughts would be appreciated.

[QDROphile]

The provider's statements may be correct as far as the provider's business model goes, but it is not correct as far as what the law requires. The provider should have started worrying about compliance and its effects much longer ago. So should the organization. The organization has a bad provider. But I don't believe anything anyone is saying, so guage my response in that light.

[K2retire]

If they are already giving a 3% contribution in the 403(b), what would be the downside of switching to a SHNEC 401(k)?

The part about the pooled accounts doesn't make sense to me.

[J Simmons]

Alternatively, they are saying if they want to stay 403(b) that they will have to close out the current 403(b) that is not pooled and open a pooled 403(b) account and that they have until June to update for new 403(b) regs. Some supervisors are worried about the employees understanding this.

Is the current non-pooled, self-directed 403(b) structured through a single, group policy or individual 403b contracts? If individual 403b contracts, is the current provider the only issuer of those 403b contracts? If not, ask the current provider how it will "close out" 403b contracts to which the employer is not a party? See Treas Reg 1.403(b)-10(a).