“We are a private health care entity that sponsors an active ERISA 403(b) plan and an old frozen non-ERISA 403(b) plan. Is a current active participant in the ERISA 403(b) able to transfer assets in from the frozen non-ERISA plan?”
Kimberly Boberg, Taylor Costanzo, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:Yes, such a transaction is permitted if the underlying annuity contracts or custodial accounts, as applicable, allow the transfer. See Treas. Reg. section 1.403(b)-10(b)(3)(i)(F).
The Internal Revenue Service term for this transaction is a plan-to-plan transfer and requires greater administration when compared to a rollover. Per the IRS website, plan-to-plan transfers are permitted if:
- the terms of the transferring and receiving plans allow these transfers;
- the transferred assets belong to a current or former employee of the receiving plan’s sponsor;
- the accumulated benefit after the exchange is at least the same as before the exchange; and
- the ERISA 403(b) plan is at least as restrictive on distributions as the non-ERISA 403(b) plan.
While transfers from the non-ERISA to ERISA plan are permissible, the plan sponsor likely would not permit the opposite scenario, for reasons also cited in the previously referenced Ask the Experts article.
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.
Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.
« PLANSPONSOR Webinar: Your HSA Questions Answered