403(b) Moves from Insurance to Mutual Funds

[austin3515]

403b Plan moves from an insurance company to a mutual fund company.

There is a ton of money in the non-elective source.  Is there any way I can preserve at least the existing money for hardship distributions?

[Belgarath]

Interesting question. 1.403(b)-10 would require distribution restrictions that are no LESS stringent than the distribution restrictions under the annuity contract, but it doesn't specifically address this question.

The fact that the distribution restrictions would prevent hardship withdrawal if the transfer was going the OTHER direction would also lead me to believe that it is reasonable to preserve the hardship option for those assets transferred TO the custodial account. At least in theory. HOWEVER, you'd have to determine if the custodial account agrees, or has language that permit this. I'm dubious that they do, but maybe...

[Belgarath]

Has anyone else run into this situation/question? Seems like with everyone restating 403(b) plans it may come up more often.

P.S. - as I look at it further, I have even less hope that it is allowable. 1.403(b)-6(c) doesn't seem to provide any wiggle room. The fact that everything specifies that the distributions cannot be less stringent also implies that it is ok if they are MORE stringent, although this flies in the face of "protected benefit" issues that we are accustomed to under 401(k) plans. I just saw an insurance company document (an ERISA 403(b) plan) that allowed in-service distributions at ANY time for employer contributions. So participants would certainly need to be adequately informed of this before they transfer their funds from the annuities to the custodial accounts.

I wonder if this was intentional, or just an oversight on the part of the IRS. But I've wondered that before...

[austin3515]

Our document provider pretty much came to the same conclusion.  If they moved to custodial acccounts, no hardships, etc.  He wanted to say that we should be ablet o track the money that accumulated in the annuity under a separate accounting but he thought even that was tough to rationalize based on the language in the regs.