plan’s adviser asks: “Can a plan
sponsor require that the assets be moved into the “current plan” if a
participant wants to take a distribution while employed? In addition, does the plan sponsor have to
supply the deselected vendor with a copy of the plan document?”
It is important to make sure the various roles of the parties are clearly established. A contract or custodial account with a vendor is not a “plan” by itself. It is merely a funding vehicle for a plan.
the final 403(b) regulations and applicable IRS transition guidance, a plan
document must generally be adopted by December 31, 2009, with the applicable
funding vehicles incorporated into the plan.
addition, remember that an employer often plays two roles – plan sponsor and
fiduciary. It is always important to
keep in mind which role the employer is playing at any given time. Amending a plan is generally a plan sponsor
“settlor” function, while administering the plan and coordinating
among vendors is generally a “fiduciary” function. In some cases, an employer will serve in both
capacities but, in other cases, a committee or other person will serve in the
respect to the question addressing the transfer of funds, assuming the question
really means moving the funds into an active funding vehicle, the sponsor will
need to check the terms of the annuity or custodial account to see if it
includes distribution language in the existing document. If so, it may be difficult or impossible to
remove this right. While a plan sponsor
could amend its plan to require a transfer to the new funding vehicle, doing so
could lead to conflicts with the vendor.
Because this issue can be complex, you should consult with counsel
before proceeding down this road.
sponsor should note that the deselected vendor contract or custodial account
does not qualify for the grandfathered transition relief under Revenue
Procedure 2007-71 because contributions were made to the deselected vendor in
2009, and, as such, an information sharing agreement is necessary.
respect to the question addressing the copy of the plan document, yes, the plan
fiduciary should provide a copy of the document to the vendor (although some
vendors may not want/accept a copy).
However, the sponsor should take note that many vendors (and possibly
their contracts or custodial accounts) take the position that the terms of
their contracts or custodial accounts control in the case of an inconsistency
with a plan document. As such, careful
coordination with vendors is always important to attempt to minimize
operational mistakes and plan document errors.
-David Levine, Groom Law Group, Chartered