Terminating a 403(b) Plan

[Lori H]

an ERISA 403(b) plan is term in 2010. If the participants own the contracts, then how do you report distributions paid on the Schedule I of Form 5500?

[Lori H]

would you just pick a date and use the value of the contracts on that date as the amount distributed?

[Guest Penelope]

It may not be possible to terminate a plan that is funded with individually-owned contracts. The IRS has taken the position that, as with qualified plans, all assets of a 403(b) plan must be distributed within a reasonable time after the termination date--generally this means within one year. Because the employer is not a party to the contract between the participant and the contract provider, the employer can't actually order the distribution to take place. If the participant won't agree to the distribution, then the asset may not be distributable and the termination is not effective.

The IRS is aware of the pain and anguish caused by this position and they are reconsidering. I've heard that they will be issuing guidance soon that may provide relief. You may want to wait on this termination until you hear what the IRS has to say. There was another thread on this topic in the spring of 2009--it provides more detail on this issue.

[Lori H]

It may not be possible to terminate a plan that is funded with individually-owned contracts. The IRS has taken the position that, as with qualified plans, all assets of a 403(b) plan must be distributed within a reasonable time after the termination date--generally this means within one year. Because the employer is not a party to the contract between the participant and the contract provider, the employer can't actually order the distribution to take place. If the participant won't agree to the distribution, then the asset may not be distributable and the termination is not effective.

The IRS is aware of the pain and anguish caused by this position and they are reconsidering. I've heard that they will be issuing guidance soon that may provide relief. You may want to wait on this termination until you hear what the IRS has to say. There was another thread on this topic in the spring of 2009--it provides more detail on this issue.

Well this company is going out of business effective June 2010 and I suspect there will not be anyone around to be available for administrative purposes after that.

Our government in action :angry: