How Do Plan-to-Plan Transfers Differ in Governmental and Private 457(b) Plans

Q: I work with several 457(b) plans, both governmental and private tax-exempt. Are the plan-to-plan transfer rules for governmental and nongovernmental plans the same or different? I’ve received conflicting answers from different service providers on the subject.

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Governmental and private tax-exempt 457(b) plans are subject to the same basic plan-to-plan transfer rule. As discussed in this prior column, funds can be transferred from the 457(b) plan of the employee’s prior employer to the 457(b) plan of the employee’s current employer, provided that the transfer satisfies the other conditions of Treasury Reg. Section 1.457-10(b).

However, there is an additional individual transfer right for governmental plans: Plan-to-plan transfers of individual participant and beneficiary accounts are permitted between governmental plans of the same employer under Treasury Reg. Section 1.457-10 (b)(4). Governmental 457(b) plans may also transfer all of their assets to another governmental 457(b) plan. However, these options are not available for private tax-exempt plans.

It is important to note that the Treasury Regulations prohibit the transfer of funds from a governmental 457(b) plan into a private tax-exempt 457(b) plan and vice versa.

On a related note, amounts may be moved to and from governmental 457(b) plans through a rollover, which may be helpful in cases in which the transfer requirements cannot be met. However, this option is not available for private tax-exempt plans.

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 Amy.Resnick@issgovernance.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future column.