Employer dissolving as a result of asset transfer

[britoski]

Has anyone run across guidance regarding what happens when an employer sponsoring a 403(b) plan dissolves? I am aware of the myriad problems with terminating a 403(b) plan and that option appears to be out. Since we can't force distributions to terminating employees, what will happen to their accounts when there is no longer a plan sponsor to "maintain" the plan?

[ETA Consulting LLC]

When attempting to terminate a 403(b) plan, you'd run into the following:

1) Assets must be distributed within 12 months of plan termination

2) This requirement is met easily for contracts funded with 403(b)(1) annuities, as you'd only have to issue the annuity to the participant.

3) When the contract is funded with a 403(b)(7) brokerage account, this can become an issue when there are participants who refuse to consent to a distribution.

4)Terminating a 403(b) "may" (or may not) be an issue when you balance to these rules.

5) There are attorneys suggesting to the IRS to allow the 403(b)(7) account to be distributed to the participant in the same manner as the 403(b)(1) annuity; which would clearly resolve the issue.

6) Unless there are actually 403(b)(7) accounts, you should not have an issue.

Good Luck!

[mbozek]

Has anyone run across guidance regarding what happens when an employer sponsoring a 403(b) plan dissolves? I am aware of the myriad problems with terminating a 403(b) plan and that option appears to be out. Since we can't force distributions to terminating employees, what will happen to their accounts when there is no longer a plan sponsor to "maintain" the plan?

I dont understand what you are saying. If the employer dissolves, the plan should be terminated by notifying the employees. The participant's assets will be held by the mutual fund custodian or insurance co. for eventual distribution under the terms of the contracts of the fund providers. If the funds are held in a mutual funds the custodian will terminate the custodial agreement because there will no longer be a plan administrater/fiduciary who provides it with instructons or pay its fees. Participants wil have 30/60 days to provide instructions to the custodian as to where their account balances are to be sent, e.g., rollover, which is permitted under reg 1.403(b)-10(a). If custodian does not receive instructions it will distribute the funds to the particpants in accordance with the provisons of the custodial agreement, such as purchase of annuity contract or mailing check to last known addess after withholidng 20% which is permitted under Reg. 1.403(b)-10(a). Funds held in an anuity contract are subject to the participants rights under the certificates of insurability which allow participants to withdraw the funds or receive annuity benefits.