401(k) converting to a 403(b)

[Guest Eagle54]

Company A is a Taxable Entity. They sponsor a 401(k) retirement plan.

Company B is a Tax exempt entity. They sponsor a 403(b) plan.

Company B owns company A.

Effective 1/1/2013 all employees of company A will be paid under Company B.

1) Can the 401(k) plan be merged into the 403(b) plan?

2) Can the current loans outstanding in the 401(k) plan be rolled over to the 403(b) plan?

If the plans cannot be merged and we must terminate the 401(k) plan, can the loans be rolled over to the 403(b) plan.

Thank you

[ETA Consulting LLC]

Company A is a Taxable Entity. They sponsor a 401(k) retirement plan.

Company B is a Tax exempt entity. They sponsor a 403(b) plan.

Company B owns company A.

Effective 1/1/2013 all employees of company A will be paid under Company B.

1) Can the 401(k) plan be merged into the 403(b) plan?

No.

2) Can the current loans outstanding in the 401(k) plan be rolled over to the 403(b) plan?

Yes.

If the plans cannot be merged and we must terminate the 401(k) plan, can the loans be rolled over to the 403(b) plan.

Thank you

Yes.

Good Luck!

[Guest Eagle54]

Company A is a Taxable Entity. They sponsor a 401(k) retirement plan.

Company B is a Tax exempt entity. They sponsor a 403(b) plan.

Company B owns company A.

Effective 1/1/2013 all employees of company A will be paid under Company B.

1) Can the 401(k) plan be merged into the 403(b) plan?

No.

2) Can the current loans outstanding in the 401(k) plan be rolled over to the 403(b) plan?

Yes.

If the plans cannot be merged and we must terminate the 401(k) plan, can the loans be rolled over to the 403(b) plan.

Thank you

Yes.

Good Luck!

Thank you for the quick reply. What IRS code allows loans to be rolled from a terminating 401(k) plans into a 403(b) plan?

[QDROphile]

Rollover of loans is within the general direct rollover rules and a very practical acknowledged legal blind spot of the IRS. The IRS may not acknowledge the blind spot, but it has articulated its acceptance of direct rollovers of loans. The 401(k) plan has to be willing to distribute the loan in kind and the 403(b) loan must be willing to accept the loan. Neither of those two necessary elements are cumpulsory, and best practice is to have express plan terms. There are ancillary details that a receiving plan would like to think through and establish conditions before accepting direct rollovers of loans.

[rcline46]

Will company A remain in existence and its business continue? If so Company B has only become a common paymaster and, in my opinion, the employees of A are still employees of A and are not eligible for the 403(b) plan.

This transaction is subject to facts not yet in evidence, and although the prior answers work, they work ONLY IF Co. A ceases to exist.

[Guest Eagle54]

Will company A remain in existence and its business continue? If so Company B has only become a common paymaster and, in my opinion, the employees of A are still employees of A and are not eligible for the 403(b) plan.

This transaction is subject to facts not yet in evidence, and although the prior answers work, they work ONLY IF Co. A ceases to exist.

Follow-up Question:

Company A is going away.

Are the employees of Company A (who terminate 12/31/2012) considered term vested employees of Company A and can therefore initiate a direct rollover to the Company B 403(b) plan OR will the "same desk rules" prohibit the distributable event prior to plan termination?

Thank you

[ETA Consulting LLC]

There are two distinct distributable events from a 401(k) plan:

1) Severance from employment (notice that this is contrasted from the old 'separation from service' that gave us the same desk rule).

2) Plan Termination.

If the employees terminate employment, then it doesn't matter that they are employed with another company working at the same desk. However, in this instance, you are terminating the 401(k) plan; so that should be the only distributable event needed to transact the rollovers.

Good Luck!