May an employer terminate a 403(b) and transfer each participant’s assets into a 401(k)? Rev. 05/16/03 E-mail Alert 2003-9

The Final 403(b) Regulations

EGTRRA permitted the rollover of 403(b) funds into a 401(k) plan after December 31, 2001. However, a rollover from a 403(b) is not permitted until a distributable event occurs. Under IRC §403(b), the distributable events for a 403(b) plan are: hardship, termination of employment, death, or disability. Unlike a qualified plan, such as a 401(k), plan termination is not a distributable event for a 403(b) plan. Thus, the employer may not "terminate" a 403(b) and transfer all the participants’ assets into a 401(k). This restriction was recently confirmed in an IRS Private Letter Ruling (PLR 2003-17022) in which the employer’s request to allow a transfer of participant assets en masse from a terminated 403(b) plan into a 401(k) was denied.