457b

[Guest Pension Girl]

We have a govenmental entity, a court system, that wants to spin off from their current 457b with the city, into a new 457b plan sponsored just by the court system. First my question is, does a spin off sound like the right term, or is this a plan to plan transfer? Apparently with a plan to plan transfer, all prior history comes over, but with a spin off only the account balances. I know this is sketchy, but just wanted any input on how others would address this.

Thanks!

[TLGeer]

The Regs. don't use the term spinoff. This term is a slang term, developed initially under Code 355, for the distribution of a subsidiary's stock to current shareholders. What you want to do would be, more slang-properly, s splitoff.

The relevant provisions of the regs. are as follows:

(3) Requirements for plan-to-plan transfers of all plan assets of eligible governmental plan. A transfer under paragraph (b)(1) of this section from an eligible governmental plan to another eligible governmental plan is permitted if the following conditions are met—

(i) The transfer is from an eligible governmental plan to another eligible governmental plan within the same State;

(ii) All of the assets held by the transferor plan are transferred;

(iii) The transferor plan provides for transfers;

(iv) The receiving plan provides for the receipt of transfers;

(v) The participant or beneficiary whose amounts deferred are being transferred will have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer; and

(vi) The participants or beneficiaries whose deferred amounts are being transferred are not eligible for additional annual deferrals in the receiving plan unless they are performing services for the entity maintaining the receiving plan.

(4) Requirements for plan-to-plan transfers among eligible governmental plans of the same employer. A transfer under paragraph (b)(1) of this section from an eligible governmental plan to another eligible governmental plan is permitted if the following conditions are met—

(i) The transfer is from an eligible governmental plan to another eligible governmental plan of the same employer (and, for this purpose, the employer is not treated as the same employer if the participant's compensation is paid by a different entity);

(ii) The transferor plan provides for transfers;

(iii) The receiving plan provides for the receipt of transfers;

(iv) The participant or beneficiary whose amounts deferred are being transferred will have an amount deferred immediately after the transfer at least equal to the amount deferred with respect to that participant or beneficiary immediately before the transfer; and

(v) The participant or beneficiary whose deferred amounts are being transferred is not eligible for additional annual deferrals in the receiving plan unless the participant or beneficiary is performing services for the entity maintaining the receiving plan.

Your splitoff is not eligible under (3) because not all assets would be transferred.

As to (4), we would need to know who pays the participants before the transfer and after. If it has been, and continues to be, the city, you should be OK. If the court has paid them or will pay them, the issues are more complex and you should get some individualized professional advice. Can you do a (4) then a (3)? What issues arise if the plan has multiple employers? Is it a single plan or (at least) two (depends on facts)? Does the plan have employer contributions with vesting? If so, what happens to nonvested amounts?

As to prior history, what specifically are your concerns?