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.
Remember, an exchange can only be accepted by vendors that have been included in the employer’s plan. Thus, the employer may be asked to “sign off” on every exchange transaction form or provide a list of the approved vendors in the plan with agreement that exchanges will be accepted only by those providers. When exchanges are being made into the plan from vendors that are not included in the employer’s plan, the employer (or the employer’s third party administrator) will have to either accept the exchange (in writing) or provide a statement that exchanges are permitted under the plan along with a list of vendors included under the plan for this purpose.
Professionals attempting to assist 403(b) participants with exchanges must ensure that, in addition to satisfying the 403(b) requirements, the employer’s rules and the requirements of the vendors are clearly understood and followed. Otherwise, it will be a challenge to complete those transactions in a timely fashion.
While IRS spokespeople have commented that they do not regard the simple move of one 403(b) account to another’s vendor’s 403(b) account when both the transferring vendor and the recipient vendor are included in the employer’s plan as an exchange, the industry does not embrace this view. It is a simple fact that both vendors will require the necessary exchange paperwork in order to accommodate the change of product vendors.