An Oct. 18 session of the 2021 ASPPA Annual conference included a discussion of 403(b) plan terminations.
Addressing the SECURE Act, Stephen Forbes, President of Forbes Retirement Plan Consulting, and Melissa Terito, a Partner at Sentinel Pension, discussed plan terminations and upcoming IRS guidance concerning them.
About 403(b) Plan Terminations
- Plan terminates when all plan assets distributed.
- Individual annuity contracts:
- Distribution of individual annuity contract considered a distribution; so is distribution of certificate of interest in group annuity.
- Insurance company assumes plan distribution responsibilities (notices, QJSA, withholding).
- Individual custodial accounts:
- Must liquidate the accounts.
- An uncooperative participant may frustrate termination.
- The employer has control over distribution under group contracts.
- Regulations permit termination, but don’t require participants and vendors to cooperate.
IRS Guidance
Forbes and Terito said that the IRS will issue guidance to provide that if an employer terminates a 403(b)(7) custodial account plan, the custodian may distribute an individual custodial account in kind to a participant and the distributed custodial account will be maintained by the custodian as a 403(b)(7) custodial account until amounts are actually paid to the participant. This, they noted, would be similar to how fully paid individual annuity contracts are treated.
The guidance, they said, will be effective retroactively for taxable years beginning after Dec. 31, 2008.
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