Non-Governmental 457(b) Transfer

An executive left 501(c)(3) Org#1 and is now an employee for 501(c)(3) Org#2.  Both organizations have 457(b) plans and both allow transfers - into and out of the plans. This executive is not eligible to participate in the Org#2 457(b) plan.  Can he still transfer his 457(b) account from the Org#1 plan to the Org#2 plan?

The Org#2 457(b) plan document never mentions "participant" or "employee" in the transfer section.  It simply states states "...the Plan Administrator may accept a transfer of assets to the Plan..." and "A transfer shall only be permitted to the extent that it is permissible in accordance with Code section 457(e)(10) and Treas. Reg. section 1.457-10(b)."  I have read both and they mention "participant" but when mentioned they are referring to the transferring plan, not the receiving plan.

My take is that this transfer can occur and I use the analogy of a 401(k) rollover.  An employee does not have to be eligible to participate in a 401(k) plan to rollover money into the 401(k) plan so long as the receiving plan permits the rollover.  The 457(b) plan document for Org#2 doesn't provide a specific restriction so I'm inclined to tell them to accept the transfer.  I would appreciate other opinions whether you agree or disagree.

This (see below) is from the SunGard (now Relius) 457 manual from about 10 years ago--I would have leaned to yes based on the plan language you cite, but would want to know how long the participation requirements are for plan 2--if 6 months or less, why not wait ?

a.      Requirements.

The affected 457 plans must satisfy the following requirements to engage in a transfer: (i) the transferor plan must provide for transfers; (ii) the transferee plan must provide for the receipt of transfers; and (iii) the affected participant must have an amount deferred immediately after the transfer at least equal in amount to the amount the participant had in the transferring plan. Depending on the context, additional requirement also may apply.

Thank you BTS.  In this instance Org #2 is very small - only 4 employees total.  The Org President, who has been there for 10 years, is the only participant in the Org #2 457(b) Plan.  While the person that left Org #1 to work for Org #2 is technically an executive in Org #2, the concern is that allowing him to be a participant in the Org #2 457(b) plan would fail to meet the top-hat exemption since 50% of the org would be participants.  Org #2 does not want to allow the employee to participate by having on-going deferrals, but they do want to allow him to transfer his old 457(b) account to their 457(b) plan.  The concern - will allowing him to do that transfer make him a "participant" in the eyes of the DOL?  I think not especially since the plan document does not mention the term "participant" in the transfer section, but I was hoping to hear other opinions and if anyone has run into a similar situation.