(b)lines Ask the Experts – Rolling from a 403(b) Plan to a 401(a) Plan

We are a large controlled group with some entities eligible to sponsor a 403(b) plan, and some not.

“We are going to be transferring a group of employees from an entity that has a 401(a) and 403(b) plan to an entity that can only maintain a 401(a) plan. Can we move the 401(a) and 403(b) plan monies of their current 501(c)(3) employer to the 401(a) plan of their new employer? This is a followup question to your Ask the Experts column on January 10, 2017.” 

David Levine with Groom Law Group, answers: 

First, you might check that these employees really will be changing common law employer. That is a facts and circumstances question. 

However, except for special rules enacted in 2015 applicable to certain church plans (Code section 414(z)), 401(a) and 403(b) plans are two different types of plan. What that means is you cannot transfer the 403(b) funds in a plan to plan transfer to the new entity’s 401(a) plan. However, 401(a)-to-401(a) plan transfers may be permitted depending on your plan terms. 

Also, note that the 403(b) regulations address whether this is a “severance from employment” for purposes of being eligible to take a distribution from the 403(b) plan (which might then be eligible for rollover to the 401(a) plan; though you could not require it): “severance from employment occurs on any date on which an employee ceases to be an employee of an eligible employer, even though the employee may continue to be employed either by another entity that is treated as the same employer where either that other entity is not an entity that can be an eligible employer (such as transferring from a section 501(c)(3) organization to a for-profit subsidiary of the section 501(c)(3) organization)”. Treas. Reg. §1.403(b)-6(h).


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

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