Section 8.02 of Revenue Procedure 2007-71 permits, but does not require, a 403(b) issuer to rely on the representation by a participant that he or she is a former employee, assuming that reliance on this information is reasonable under the specific facts and circumstances. As a result, some 403(b) vendors will not automatically rely on a participant representation without employer approval.
There are many reasons why a 403(b) vendor may decide not to honor a representation, including the following: (1) vendors are not always equipped to confirm that a participant is eligible for the transition relief and do not want to act in a way that could adversely affect an employer’s plan, (2) the transition guidance refers to an “issuer” not a “vendor” and a TPA may be confused whether they fall within the scope of the guidance, and (3) in the IRA context specifically, there are pre-2002 regulations (i.e., pre-EGTRRA) that relate to the substantiation of rollovers that, when applied to 403(b) plans, lead some providers to act cautiously when an IRA rollover request is made.
With respect to the ability to “force” a vendor to permit self-certification, there is often broad discretion built into insurance and/or custodial accounts which gives a vendor significant discretion in imposing administrative requirements for a withdrawal request, thus limiting an employer’s ability to “push” them to approve a distribution by participant representation. However, also note that some employers may be reluctant to approve any distribution requests if the contract or account is intended to be part of a “safe harbor” plan not subject to ERISA.
-David Levine, Groom Law Group, Chartered
NOTE: This feature is to provide general information only, does not constitute legal advice as part of an attorney-client relationship, and cannot be used or substituted for legal or tax advice.