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New 403(b) Transfer Rules

New 403(b) regulations set to go into effect January 1, 2009 will impose new rules on the transfer of 403(b) money. "Old style" outside-of-plan 90-24 transfers will not be permitted after September 24, 2007. Note: New regulations are still being interpreted and this story represents our best understanding of transfer rules now. We will continually update this page as necessary.
 
  Transfer Options

Want to switch vendors? Leaving your employer and want to transfer 403(b) money to your new employer's 403(b)? Wish to purchase pension credit with 403(b) money? The IRS allows all of this. The following types of transfers are permitted under the new regulations (but not required — check your employer's written plan documentation for details.)
 
1.  A change of contracts (or investments) within the same plan — this means an employee may move money from one employer-sponsored vendor to another employer-sponsored vendor.
Note: Transfers to outside-of-plan vendors are permitted, however, both the employer and vendor must abide by the rules spelled out below under "Transfer Notes."
2.  A transfer of assets from one plan to a plan of a different qualified employer — employees are permitted to move 403(b) money to a new employer's 403(b) if that employer accepts transfers. Another option when changing jobs is to move 403(b) money into a Rollover IRA.
Note: In the past employees were permitted to move 403(b) money into a 401(k) and vice versa. Some believe new regulations will not permit this. We will update this issue as it becomes more clear.
3.  To purchase permissive service credits in a defined benefit plan, or pension plan, maintained by a government.
 
  Transfer Notes

In order for a transfer to occur under the first scenario (above) the following must be in place:
 
A written agreement between the employer and product vendor must exist in which they agree to share plan and employee information that pertains to eligibility, loans, hardship distributions, deemed distributions, etc. There must be enough information shared to ensure that the requirements of section 403(b) are satisfied since all 403(b) contracts on a specific employee are treated as one for purposes of 403(b). A transfer to an outside-of-plan vendor could occur if both the vendor and employer comply with these requirements.
The new contract has to be subject to distribution restrictions not less stringent than those imposed on the contract being exchanged.
The plan must provide for exchanges.
Finally, the "accumulated benefit" immediately after the exchange must be at least equal to the accumulated benefit before the exchange.
 
  Other Transfer Notes
Be aware of all surrender charges before initiating any type of transfer. Many 403(b) vendors — particularly insurance companies — charge stiff exit penalties, which typically last from 5 to 15 years with the charge corresponding to the number of years the penalty lasts. For example, if a vendor imposes a surrender charge for 7 years, then the exit penalty will often be 7 percent of balance. These charges usually decline by one percent each year. Unfortunately, many vendors impose rolling surrender charges. This means each new contribution is locked into a new surrender charge period. Participants saddled with these charges have two choices: (a) bite the bullet, pay the penalty, and move the money; or (b) transfer only money that has passed the penalty threshold. As new money passes the penalty phase, transfer it.
Your current and future financial institution will require various paperwork in order to perform a transfer. Contact each to find out exactly what is needed.
Your employer is required to have written plan documention in place by January 1, 2009. Ask to see this document as it will be a good source of information for your particular plan.
Finally, we also encourage you to post transfer questions on our Discussion Board.
 
 

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