Getting help - TIAA

1 Making sense of 403(b) transfers and rolloversPlan sponsors want to make it easy for their employees to participate and make the most of the tax-deferred benefits of their 403(b) plans. This includes making sure that employees understand the options available to them if they want to move their assets within or outside of their 403(b) plans. However, the rules governing rollovers and exchanges in the 403(b) world can still be confusing despite being in effect for some time now. By better understanding and communicating the differences among the various options available to transfer assets, you can help your employees navigate these is it complicated?Prior to the issuance of the final 403(b) regulations in 2007, which became effective in 2009, Revenue Ruling 90-24 allowed direct transfers between 403(b) contracts without employer involvement. This could take place as long as the receiving contract or custodial account included distribution restrictions that were the same as or more restrictive than the distribution restrictions in the contract or account that was being exchanged.

2 With the final 403(b) regulations, Revenue Ruling 90-24 was repealed and employees could no longer transfer to a 403(b) contract or custodial account that is not attached to a plan. The final 403(b) regulations instead established contract-to-contract exchanges and plan-to-plan transfers as a way for employees to move assets within and among 403(b) plans. Each of these has distinct requirements and applies to certain types of transfers between 403(b) plans or contracts. A key distinction is that they also require the involvement of the employer. Rollover regulations were not affected by the final 403(b) regulations and employees can still roll over their assets to an IRA or another retirement plan that accepts them (or from an IRA to a 403(b)) if they qualify to do so. As your employees take a holistic approach to retirement planning, it is important they understand how to move their assets within the plan and how to consolidate their retirement accounts.

3 Understanding the optionsWith each of the available options it is important to consider whether an employee is eligible to move assets and the specific rules governing each type of asset movement. These rules may be confusing and should be reviewed carefully to better communicate what employees can and can t do. Figure 1 summarizes when to use the three transfer options. Figure 1: When to use each optionContract exchangeApplies to the transfer of assets within a 403(b) transferUsed to transfer assets between plans of the same type, between two 403(b) plans. This is allowed either while in-service or after-service as the participant does not have to meet a distributable event under the when distributing assets between the same or different plan types or with IRAs. Must meet a distributable event under the :11 Making sense of 403(b) transfers and rolloversContract exchange A contract exchange is a transfer made within the same 403(b) plan among the funding vehicles approved under the terms of the plan.

4 It only applies in plans with multiple approved vendors. These vendors are listed in the plan documents as eligible to receive plan contributions ( payroll-slot vendors ). With exchanges, regulations require that the benefit of the transferred assets not be diminished upon transfer, although surrender charges can still apply. As part of the transfer, the most stringent distribution restrictions from the transferring investment must also continue to be enforced under the new contract. It is important to note that a contract exchange can also take place not only with vendors approved under the plan to receive contributions, but if allowed in the plan document exchanges can also take place with vendors that are not approved to receive contributions but have signed an Information Sharing Agreement (ISA) with the employer. Plan-to-plan transfer Employees wanting to transfer assets between two 403(b) plans may use a plan-to-plan transfer.

5 The participant must be an employee or former employee of the employer for the receiving plan. Both the current plan and the receiving plan must allow the transfer to take place. Just as with a contract exchange, the benefit of the transferred assets should not be diminished upon is a downside to allowing 403(b) plan-to-plan transfers. With these types of transfers, if a participant doesn t meet a distributable event under the transferring plan before making the transfer, then the receiving plan sponsor must continue to monitor the distributable event of the transferring plan. However, with rollovers plan sponsors don t have these requirements because a rollover must meet a distributable event. As a result, many plan sponsors elect to only allow rollovers and not plan-to-plan transfers into a 403(b) plan. Rollover The final 403(b) regulations did not make any changes to the rule governing rollovers from or to a 403(b) plan.

6 However, it is worth reviewing the rules to better understand the differences among rollovers, contract exchanges and plan-to-plan transfers. A rollover, as defined by the IRS, occurs when a participant directs the transfer of an eligible rollover distribution from his or her retirement account to a new qualified or 403(b) plan or individual retirement arrangement (IRA). It is important to remember that a rollover from a 403(b) plan is considered a plan distribution and can only take place after an employee s separation of service or if in-service distributions are permitted by the plan. Active employees may be eligible for in-service distributions if they are 59 years or older if permitted by the terms of the plan documents. Once their eligibility has been established, employees have two options to perform a rollover from their 403(b) plan: a direct rollover or a 60-day indirect rollover.

7 WA direct rollover takes place when an employee transfers 403(b) plan assets directly to another retirement plan that accepts rollovers or an IRA. It is made payable to the new account and not to the employee. As such, this is not considered a taxable event for the employee. WAn indirect rollover takes place if the payment from the plan is made directly to the employee. In this case, the employee has 60 days from the date of receipt to deposit all or a portion of the payment to a new retirement plan or IRA. Because an indirect rollover is considered a distribution, failure to deposit the distributed assets in another retirement plan or IRA within 60 days will result in a taxable event. It is also important to remember that according to IRS rules, federal taxes must be withheld at the time of payment. If a participant wants to roll over the entire amount of a distribution, he or she will need to use other sources for the amount are pros and cons to direct and indirect rollovers.

8 With a direct rollover, the employee does not have to redeposit rolled-over assets and risk causing a taxable event and there is no withholding for federal taxes at the time of the rollover. On the other hand, indirect rollovers may speed up the rollover process for the employee. Individual employee preferences help determine the best option at the time. Getting helpUnderstanding the differences among available transfer options introduces an additional layer of complexity to the administration of your plan. As you seek to comply with these provisions, you can turn to your retirement provider to help you understand these differences and to educate your participants on how they can move their plan assets. Considering the potential nuances associated with different transfer options, it would also be prudent to confer with legal counsel when making rollover or transfer determinations.

9 This material is for informational purposes only and the statements made above represent TIAA-CREF s understanding of applicable law. Neither TIAA-CREF (nor its affiliates, distributors, employees, representatives and/or insurance agents) provide legal or tax :11