(b)lines Ask the Experts – Revisiting a Switch to a 401(k)

A PLANADVISER National Conference attendee asked: “A new plan sponsor client that I advise had frozen it’s ERISA 403(b) plan and replaced it with a 401(k) plan. Was this a mistake? What are the issues that I should consider in such a scenario?”  

Michael A. Webb, Vice President, Retirement Services, Cammack LaRhette Consulting, answers:  

Whether it was a “mistake” or not is dependent on the particular facts and circumstances, but our December 29, 2009, edition of Ask the Experts (see Ask the Experts – Replacing a 403(b) with a 401(k)) details the pros and cons of replacing a 403(b) plan with a 401(k) plan, and the information provided in that column remains as accurate today as when it was published nearly two years ago.   

At the PLANADVISER conference session, we added that, if it was determined that it would be more prudent to maintain a 403(b) plan as opposed to a 401(k), in the future, the 403(b) plan, presuming that it has not been terminated,  could be reinstated and the 401(k) plan frozen/terminated.  However, should the plan sponsor choose to go through the formal termination application process with the IRS for a favorable determination upon termination (similar to the process of obtaining a determination letter upon establishment of a plan), such a process can be lengthy.   

In addition, all plan reporting and disclosure requirements (5500s, Summary Plan Descriptions, etc.) must continue to be satisfied until all plan assets are distributed.   

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.