Transferring Assets from an Employer’s non-ERISA 403b to its New 403(b)

Q. Is there any restriction on transferring assets from an employer’s non-ERISA 403b plan to its newly established 403(b) plan?

A. If this is a plan-to-plan transfer, then yes, it can be done—if the employee whose funds are being transferred is an employee or was an employee of the accepting plan.

Operationally, however, we also need to look at the underlying custodial agreements/annuity contracts (underlying investments) in the original plan. For example, if the original underlying investments are all individual contracts/custodial agreements then each participant must separately authorize those assets to be reinvested into another investment. The employer cannot force a distribution and then a reinvestment into another provider. This is exactly why we have “deselected vendors” in plans. Yes, the employer can move the assets to a new plan, but any assets that were under an individual agreement/contact must be moved and kept with that provider. An employer/advisor that violates this rule has a contract violation.

Note, however, that if any of the contracts/custodial agreements are under a group contract to which the employer is also a party, then yes, the employer has the right to move those assets into a new plan and new investments. Group annuity products have been around for a long time, group custodial agreements are beginning to be a part of plans, but it will take a while for us not to see deselected vendors in takeovers or transfers to new plans. Some vendors have attempted to “change” an individual custodial agreement to a group by a mass mailing; again, this is a violation of contract law, and each participant in the 403(b) plan would need to sign off on such a change.