Ask the Experts July 23, 2024

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

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

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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.

Compliance July 22, 2024

Single and Multiemployer PBGC Funds Likely to Remain Solvent Through Projection Period

According to the latest Pension Benefit Guaranty Corporation projection report, solvency is expected for both insurance funds.

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The Pension Benefit Guaranty Corporation projects lasting solvency for both its single and multiemployer pension insurance systems, per a projections report released on July 19.

The PBGC maintains two insurance programs, one for single employer defined benefit plans and another for multiemployer funds. The programs are funded by premiums. For 2024, single employer plans pay $101 per participant and $52 per $1,000 of their unfunded vested benefits. Multiemployer plans pay $37 per participant and do not have a variable rate premium.

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According to the report, the single employer plan will remain solvent over the next 10 years, even in the most cynical and dire of economic and market simulations: “Even under the most extreme downside economic scenarios, the single-employer program does not fall into deficit during the projection period.”

The single employer program currently has a net surplus of $44.6 billion, and this is expected to grow to $71.6 billion by October of 2033.

The projection for the multiemployer fund was also positive, but not as significantly. The projection period for the multiemployer program is 40 years, and the fund remains solvent over that time period in 61% of projections. However, the most pessimistic projection shows the fund becoming insolvent as early as 2037.

The report credits grants through the federal Special Financial Assistance Program for the health of the multiemployer fund. In the absence of the SFA Program, which gives cash grants to struggling multiemployer plans to shore up their solvency through 2051, the multiemployer fund, which otherwise would have had to fund them, would have become insolvent in 2026.

John Lowell, a partner in pension consulting firm October Three, says the report is “so positive for the single employer program that PBGC has sought out suggestions that might even include changes to the premium structure in order to encourage the adoption and continuation of more private sector pensions. [The] PBGC might consider proposing that premium levels be decreased and perhaps provide additional decreases for certain plan designs that inherently represent lower risk to PBGC,” such as risk-sharing pensions.

Lowell also notes that for the multiemployer fund, “the projections are highly volatile” because it is harder to forecast economic conditions for the industries, and therefore the employers, represented in multiemployer plans.

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