Groups Ask for 403(b) Termination Distribution Clarification

June 29, 2010 ( - The American Society of Pension Professionals & Actuaries (ASPPA) and the National Tax Sheltered Accounts Association (NTSAA) have requested clarifying guidance relating to the termination of a 403(b) plan.

In a joint comment letter filed with the Acting Director of the IRS Employee Plans Division, Andrew Zuckerman, the groups noted there is much confusion among practitioners regarding what exactly qualifies as a liquidating ‘termination distribution’ for a 403(b) plan, according to a statement by Craig P. Hoffman, General Counsel and Director of Regulatory Affairs at ASPPA.  Since new 403(b) regulations passed two years ago there’s been an uptick in plan terminations, making a timely resolution of this issue even more important.  

The groups said under current regulations, it is not clear when an individual contract or custodial account is considered ‘distributed’ for plan termination purposes—as a result many plans who wish to terminate remain in limbo. This leaves participants waiting for their money.   

The absence of formal guidance has only served to complicate the situation.    

The joint comment letter offers several common examples of ‘distributions’ made at the termination of a 403(b) plan.  “We believe that the distributions described each example should be recognized as non-taxable liquidating termination distributions of plan assets. We look forward to further clarification and confirmation from the IRS,” Hoffman said.  

The letter is here.