What Are the Differences Between Plan-to-Plan Transfers and Rollovers?

Q: Our governmental 457(b) plan allows for both plan-to-plan transfers and rollovers into the plan. A participant in our plan is eligible for both transactions (she had a balance in a 457(b) plan of a prior governmental employer that allows for both types of transactions out of that plan) and asked us about the differences between the two types of transactions. Can the Experts help?

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

A: Absolutely!

A plan-to-plan transfer can only be made from one governmental 457(b) plan that allows transfers out to another governmental 457(b) plan that allows transfers in. Please note that there are other restrictions that apply—for more information on these restrictions see this Ask the Experts column for details.

By law, any funds transferred in this fashion must maintain the withdrawal restrictions of the receiving plan (i.e., your plan). For example, if your plan allows withdrawals for unforeseeable emergencies, then withdrawals from the account transferred to your plan must be allowed for unforeseeable emergencies as well. Finally, the recordkeeper for your plan is not required to track this transfer source separately.

A rollover can also be made into a governmental 457(b) plan from another governmental 457(b) plan (and some other eligible retirement plans, though the rules for these other plan types is beyond the scope of this column). Rollover sources in a governmental 457(b) plan are always available for distribution at any time, so, for example, an unforeseeable emergency is not needed to withdraw the funds. The recordkeeper for your plan must track this rollover source separately, for the purposes of administering the distribution restrictions.

Since rollovers in this case provide for future distribution flexibility that plan-to-plan transfers do not, rollovers are often preferable to plan-to-plan transfers in situations where participants are eligible for both types of transactions. However, a participant should consult with an adviser well-versed in such transactions before proceeding.

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.

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