Tip of the Week: Employer Involvement in Exchanges into the Plan

Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here . 

If an employer’s plan permits, participants or beneficiaries may exchange 403(b) accounts with vendors that are not included in the employer’s plan to vendors that are included in their current employer’s plan. This privilege can also be extended to former employees that have retained their 403(b) accounts. In order to accomplish an exchange from an “outside vendor,” the employer (or its representative) must authorize receipt of the exchanged 403(b) account to confirm that the plan permits exchanges from outside vendors and the recipient vendor is included under the employer’s plan.

If the exchange is merely the movement of one 403(b) account held by a vendor that is included under the employer’s plan to another vendor that is included under the employer’s plan “exchange” paperwork will still need to be executed to comply with product vendor requirements whether or not the IRS does or does not regard this as an exchange. The requirements of each vendor must be understood prior to starting the exchange process. Also, it is very likely that employers will be asked to confirm that the receiving vendor is an approved vendor in the employer’s 403(b) plan.