Can a Current Active Participant Transfer Assets From a Frozen Plan To an Active ERISA 403(b) Plan?

“We are a private health care entity that sponsors an active ERISA 403(b) plan and an old frozen non-ERISA 403(b) plan. Is a current active participant in the ERISA 403(b) able to transfer assets in from the frozen non-ERISA plan?”

Kimberly Boberg, Taylor Costanzo, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

Yes, such a transaction is permitted if the underlying annuity contracts or custodial accounts, as applicable, allow the transfer.  See Treas. Reg. section 1.403(b)-10(b)(3)(i)(F).

The Internal Revenue Service term for this transaction is a plan-to-plan transfer and requires greater administration when compared to a rollover. Per the IRS website, plan-to-plan transfers are permitted if:

• the terms of the transferring and receiving plans allow these transfers;
• the transferred assets belong to a current or former employee of the receiving plan’s sponsor;
• the accumulated benefit after the exchange is at least the same as before the exchange; and
• the ERISA 403(b) plan is at least as restrictive on distributions as the non-ERISA 403(b) plan.

Note that these are the IRS rules and do not reflect the Department of Labor’s treatment of such assets—this is because certain sections of the Internal Revenue Code and the Employee Retirement Income Security Act conflict with one another with respect to certain provisions concerning plan-to-plan transfers, as discussed in a prior Ask the Experts article. 

While transfers from the non-ERISA to ERISA plan are permissible, the plan sponsor likely would not permit the opposite scenario, for reasons also cited in the previously referenced Ask the Experts article.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice. 

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