two 403(b) plans and transferring between them

[Pinefresh]

A non-profit we work with has a 403(b) plan - all the participants have the individual accounts where the contracts are between them and the product directly. Now the plan sponsor wants to leave that product, but they can't unless each individual participant agrees to it - there are dozens, so I'm sure we won't get them all.

They suggested freezing Original Plan and starting a new 403(b) plan (where the employer controls the accounts, thankfully), and then the participants can transfer from Original Plan to New Plan at their leisure. But I don't think that works because the active participants have no distributable event from the Original Plan, so therefore there is no legal basis to move the money from Original Plan to New Plan. Am I making a mountain out of a molehill?

I thought we could have the plan sponsor terminate the Original Plan - that would give the participants a distributable event to move to New Plan. Twelve months later, there will still be some terminated participants who haven't moved... so the plan termination fails and Original Plan still has to continue to exist as an active plan. But the accounts that got rolled over to New Plan don't have to go back, so we basically just created a 12-month window to make these transfers. Is that OK?

[Doghouse]

Most of the 403(b) providers I have worked with terminate a 403(b) by converting the accounts to individual contracts. Then the participants are free to roll over or just leave as an individual contract, but in any event, it's no longer in the employer-sponsored 403(b) plan.

[Doghouse]

I should mention that you do have the "successor plan" issue if you go 403(b) to 403(b) - which is why in many cases we've ended up going 403(b) to 401(k).

[QDROphile]

You should take another look at what "they" suggested, with two thoughts:

1. The freeze is simply a proscription on new money or transfers going into the current contract and the "new" plan is the new options for holding/investing new money (an expansion of the current plan). "They" would have to agree based on what the current contract says, but I do not see a difference. "They" suggested that individuals could transfer or not separately at their elections.

2. Distribution events are required for transfers by rollover. A distribution event is not required to transfer from the current contract accounts to the new accounts/options under the plan. Conceiving of the arrangement as the same plan rather than a new separate plan should help you get your head around this, but transfers from plan-to-plan also work under the right conditions.

You should be happy to have a provider that is looking for solutions that do not involve the provider holding on to old and new money.

I depart from the suggestion because I think it is unnecessary to end up with two plans when some participants choose to keep old money where it is.

[Carol V. Calhoun]

I would agree with QDROphile. There is no need for a whole new plan, just because you are changing investment options, any more than you'd need to start a new plan if you changed investment options under a 401(k) plan. You can just continue the existing plan, but provide that new money will go into the new contracts.

[Pinefresh]

Most of the 403(b) providers I have worked with terminate a 403(b) by converting the accounts to individual contracts. Then the participants are free to roll over or just leave as an individual contract, but in any event, it's no longer in the employer-sponsored 403(b) plan.

But I thought that was the problem with these direct-to-participant 403(b) plans - they can't be terminated without employee consent. Or am I mixing that up?

You should take another look at what "they" suggested, with two thoughts:

1. The freeze is simply a proscription on new money or transfers going into the current contract and the "new" plan is the new options for holding/investing new money (an expansion of the current plan). "They" would have to agree based on what the current contract says, but I do not see a difference. "They" suggested that individuals could transfer or not separately at their elections.

2. Distribution events are required for transfers by rollover. A distribution event is not required to transfer from the current contract accounts to the new accounts/options under the plan. Conceiving of the arrangement as the same plan rather than a new separate plan should help you get your head around this, but transfers from plan-to-plan also work under the right conditions.

You should be happy to have a provider that is looking for solutions that do not involve the provider holding on to old and new money.

I depart from the suggestion because I think it is unnecessary to end up with two plans when some participants choose to keep old money where it is.

I've since learned that the participant count has reached audit level, so two plans would mean two audits: one for the old accounts (even though no new money would be going in), and one for the new accounts (where are the new money is going). But one plan seems like it would be easier. What are the "right conditions" to transfer?

[QDROphile]

Example of right conditions: The plan documents of custodial account arrangements (each of which is a plan) provide for transfer to/from another custodial account arrangement, as appropriate, and distribution restrictions are preserved in the receiving plan as required by law.

It concerns me that this is a follow-up question because the best approach is to keep the one plan of the employer and modify it to have the current arrangement as an option under the plan while adding the desired new arrangements. No plan-to-plan transfers are necessary. I wonder if you understand what a 403(b) plan is, or are confusing my reference to plan transfers with contract transfers. Perhaps you are stuck with a particular provider and the provider cannot see beyond its experience with products or cannot offer you the best product. It is better for the employer to take over the plan and look at the desired products and features separately rather than let a product or provider define the plan.