The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) includes a provision that makes it easier for plan sponsors to terminate a 403(b) plan.
Contributions to a 403(b) are typically held in one of two types of annuity contract: a group contract, issued in the name of the plan to hold assets attributable to multiple plan participants, or an individual contract, issued in the name of an individual participant. Assets held under an individual contract are effectively beyond the control of the plan administrator, particularly in the case of former employees, who may have transferred the assets to a different provider.
Terminating a 403(b) has historically been challenging for plans utilizing individual contracts. Because a plan is not considered formally terminated until all assets have been distributed, sponsors of a terminated 403(b) faced the risk that until all holders of individual contracts have been identified and provided with distribution paperwork, the plan might still be treated by the IRS as an ongoing plan that remains subject to applicable reporting rules and other administrative burdens.
Section 110 of the SECURE Act directs the Department of the Treasury to issue regulations providing that in the case of a terminated 403(b) plan, any holder of an individual contract would be treated as having received a distribution of their account for purposes of effectuating the termination of the plan. Guidance is to be published within six months of the passage of the SECURE Act and would be retroactive as far back as 2008.
This change comes as welcome news to sponsors of 403(b) plans. Keep an eye out for further updates when the Treasury guidance is released.
Interested in learning more about the SECURE Act? Download the SECURE Act eBook from the Schneider Downs Retirement Solutions team for a full overview of provisions and highlights at www.schneiderdowns.com/secure-act-ebook.
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.
Learn more about how private colleges and universities tackled the Coronavirus pandemic and maintained consistent operating cash flow margins consistent with years prior and how federal aid to many colleges and universities helped boost performance amid the decline in fiscal 2020 operating revenues. ...