Ask the Experts September 17, 2019

(b)lines Ask the Experts – Can a 401(a) Plan Account be Rolled Into a 403(b) Plan?

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning 403(b) plans and regulations.
Reported by

“I recently left the employ of a public school system where I had a 401(a) account. I will now be teaching at a private school that offers a 403(b) plan. I am receiving conflicting advice about whether I can rollover tax free my 401(a) funds into my new employers 403(b) plan. Can the Experts help? Thanks!”

Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:

Of course we can! But the Experts will need for you to check with your current employer to confirm one item; whether or not their 403(b) plan accepts rollovers from other retirement plans (most do). If it does NOT accept rollovers, then you cannot rollover your 401(a) account to your current employer’s 403(b) plan.

However, if it does accept rollovers (and, in the Experts’ experience, most 403(b) plans do indeed accept rollovers), then you can roll over funds from your 401(a) plan to your new employer’s 403(b) plan, as rollovers are permitted from 401(a), 401(k), governmental 457(b) and other 403(b) plans to a 403(b) plan. Whether the 403(b) plan in question is a public or private school 403(b) plan is irrelevant for this purpose.

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However, there are a few other issues about which you should be aware as you complete your rollover, as follows:

1) There are two ways to complete a rollover: a direct rollover, where the rollover proceeds are made directly payable to the 403(b) plan of your current employer, and an indirect rollover, where the proceeds are made payable to you (subject to 20% withholding), and you are then responsible for redepositing the funds in the new 403(b) plan within 60 days of the payment. As you can probably figure out, the easiest method of ensuring the tax-free status of the rollover is by completing a direct rollover, as you will need to make up the 20% withholding with other funds if you want to roll over the full amount through an indirect rollover.

2) Some 401(a) plans charge a fee for rolling money out of the plan to a new plan, so you will want to confirm with your 401(a) provider as to whether or not this is the case.

3) If your prior employer allows you to retain the funds in your prior employer’s 401(a) plan, that is an option as well, though this means that you will have two plans to track. However, this situation may be preferable if the new 403(b) plan is more expensive than the prior 401(a) plan.

4) Your new 403(b) plan will be subject to some different rules than your previous 401(a) plan, since your new plan will not only be subject to some federal regulations under the Employee Retirement Income Security Act (ERISA), but will be subject to rules that are unique to 403(b) plans as well. Most of these new rules are designed to protect you and thus will probably be a positive; however, there are some rules, such as a spousal benefit requirement, that may affect your planning for retirement. Thus, you may wish to consult with a retirement professional to discuss some of these issues.

Best of luck with your new job and your rollover!

 

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.

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.
Products September 16, 2019

Wilmington Trust and Nasdaq Partner on CIT Awareness

Investors, plan sponsors and advisers will be able to search for collective investment trust (CIT) data on the Nasdaq Fund Network (NFN) using new tickers.

Reported by

Wilmington Trust and Nasdaq have partnered to offer tickers for over 200 collective investment trusts (CITs) on the Nasdaq Fund Network (NFN).

The two entities look to encourage CIT adoption among investors, a move that they say has stalled due to low awareness of the funds. Comparable to mutual funds, CITs are low-cost investment vehicles accessible via 401(k) plans, but have largely remained unacknowledged in the past due to little understanding in price and performance.

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Rob Barnett, head of Retirement Distribution & product leader for Wilmington Trust’s CIT Business, expects the standardized tickers will incite clarity and usage of CITs, especially as investors, employers, and advisers will have access to greater information.

“Our hope is relative transparency,” he tells PLANSPONSOR. “We’re giving broader reach for CITs, so participants and plan sponsors can use it, and so advisers have easier access. This will allow participants to find price and performance by going into NFN’s search engine and typing up the ticker.”

According to a recent report by Cerulli Associates and the Coalition of Collective Investment Trusts, the lower cost associated to CITs is the primary driver of their growth. However, more than 40% of CIT providers identified a lack of knowledge among advisers as a top challenge to their adoption in DC plans, along with a noticed absence of transparency. The small amount of reporting done on CITs contributes to its little adoption, compared to the more common mutual fund. More than half of providers noted a lack of CIT information threatens the fund’s adoption, according to Cerruli.

“If advisers find it difficult to find information on a CIT, they’re going to have trouble recommending it,” says Barnett.

At Nasdaq, the NFN works as a global dissemination service, collecting and spreading data and information on over 35,000 mutual funds, market funds and other investment options to the public. Its aim is to provide detailed, daily analysis on investment funds and products. The Network was relaunched in March 2019 from its previous name, the Mutual Fund Quotation Services (MFQS), and Wilmington Trust will be the first institution to register CITs with the Network.

“It is more important than ever for our clients to understand the various investment vehicles and make informed choices,” says Christopher Randall, head of Retirement and Institutional Custody Services at Wilmington Trust. “As the first institution to register CITs with Nasdaq Fund Network, we are helping overcome a major challenge to widespread adoption of CITs, providing the information advisers, plan sponsors and participants need to make fully informed decisions.”

Barnett believes implementing these tickers will inspire other firms to follow, both in embracing CIT adoption and awareness.

“Our hope is that we’re not just the first, that there are others that adopt this process,” he says.  “That we’re not just the only user, but that we can help create this widespread use of information across all CITs.”

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