The answer from David Levine, Groom Law Group, Chartered
Whether or not the individual must accept a distribution depends on the wording of the individual insurance contract. Many individual insurance contracts require participant consent for any form of distribution, while others may provide that a total plan termination triggers an automatic distribution or that the employer can require a distribution on plan termination. As such, it is necessary to review the individual contract to determine the answer here.
In addition, this question highlights the fact that it may not be possible to terminate a 403(b) plan if there are restrictions in underlying annuity contracts that prevent the distribution of participant accounts or the contracts themselves. The regulations provide that “delivery of a fully paid individual insurance annuity contract is treated as a distribution.” Thus, it may be possible for the contract to be considered distributed by delivery of the contract to the participant, though it should be noted that the DoL has not issued parallel guidance under ERISA for 403(b) plans, if ERISA applies.
Lastly, we note that if a distribution is made, an eligible rollover distribution is not only eligible for rollover to an IRA or successor plan, but also to any tax-qualified plan, 403(b) plan, or governmental 457(b) plan that will accept rollover contributions from the participant.
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.