Contract Exchanges and Plan to Plan Transfers

Question 1

An exchange is the movement of all, or some portion of a 403(b) account held with one vendor to another vendor that is a part of the employer’s plan
True
False

Answer 1

True
A contract exchange is when a participant transfers plan assets from one investment to another investment within the employer’s 403(b) plan

Question 2

There are IRS penalties assessed on plan-to plan transfers not completed within 60 days
True
False

Answer 2

False
There are no time-frames on when a plan to plan transfer must be completed

Question 3

Participants may only purchase service credits during their last three years before reaching normal retirement age as defined in the plan document
True
False

Answer 3

False
There is no regulation that restricts the purchase of service credits to the final 3 years of service prior to normal retirement age

Question 4

When participants are considering a contract exchange to another investment provider they should consider the vesting provisions used by the prospective provider
True
False

Answer 4

False
Vesting is not a factor when considering a contract exchange

Question 5

A plan can only accept an exchange if the vendor is included in the plan
True
False

Answer 5

True
The plan document determines if a plan allows for tax-free transfers and contract exchanges

Question 6

In a state defined benefit plan if a participant had not reached normal retirement age as defined in the plan document, the purchase of service credits is a taxable event
True
False

Answer 6

False
A 403(b) plan participant is not taxed on the purchase of service credits, regardless of the participant’s age

Question 7

Because of the final 403(b) regulations, participants have reduced control of their 403(b) accounts
True
False

Answer 7

True
Ph may want to move to IRAs where transactions permitted in the code are not subject to employer approval

Question 8

Tax free transfers from 403(b) accounts can no longer be used to purchase years of service in state retirement systems defined benefit plans
True
False

Answer 8

False
Under IRC 403(b) (13) tax free transfers from 403(b) accounts can be used to purchase years of service in state retirement system defined benefit plans. As long as the 403(b) plan language includes this transfer feature and the pension system accepts the tax-free transfer to buy years of service, participants may use their 403(b) or governmental 457(b) accounts to purchase service credits

Question 9

In a contract exchange all or some portion of a 403(b) account held with one vendor is moved to another vendor that is a part of the employer’s plan
True
False

Answer 9

True
An exchange under the final regulations is simply the movement of all or some portion of a 403(b) account held with one vendor to another vendor that is part of the employer’s plan. The recipient vendor must be listed as an approved provider in the written plan

Question 10

Plan to plan transfers may require severance from service when the transfer is between plans of different employers
True
False

Answer 10

True
Plan to plan transfers may require severance from service when the transfer is between plans of different employers. The transactions are not distribution and income tax reporting is not required. Before permitting plan to plan transfers or exchanges vendors will need to check that the employer’s written plan permits the exchange or transfer and that the receiving vendors are included in the employers