(b)lines Ask the Experts – Can 403(b) Assets Be Transferred Into a New 401(k) Plan?

“Are there any circumstances under which a plan sponsor of a 501(c)(3) mon-profit organization can convert a 403(b) plan to a 401(k) and transfer assets from the 403(b) plan to a 401(k)?”

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:

Unfortunately, not at this time. A 403(b) plan of a 501(c)(3) tax-exempt organization cannot generally be merged with a 401(k) plan; the only exception involves churches, which, subject to certain restrictions, were permitted to merge 401(k) and 403(b) plans that they sponsor via recent legislation.

The final 403(b) regulations, in theory, DO permit a 403(b) plan to be terminated by a 501(c)(3) tax-exempt organization. However such a termination would not allow the employer to transfer assets to a 401(k) plan, though participants could make individual elections to roll their 403(b) plan account balances into a 401(k) plan of the 501(c)(3) tax-exempt plan sponsor. However, 403(b) plan terminations are a relatively rare event, since there are many legal and practical barriers to a successful 403(b) plan termination, as indicated in a past Ask the Experts’ article.

It is possible that future legislation will make it possible for 401(k)/403(b) plan mergers, but at the present time it is not possible for a 501(c)(3) tax-exempt organization to replace its 403(b) plan with a 401(k) plan and unilaterally transfer assets from the old plan to the new.

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.