[fsrph]

Hi,

I read great information here, but my problem is quite unique. I work in a hospital with over 2000 employees and have a 403b. The hospital was recently bought by a for-profit company. The 403b will be terminated and we have 60 days to either transfer the money to the new companies provider, or to transfer the money anywhere we want. That is OK so far. But, I tried to transfer the money to Vanguard today and the transferring company said I would have to pay a significant surrender fee as would any employee transferring money out of their company. So, that means all of the employees would owe surrender fees due to no fault of their own. Is this a normal situation where all employees of a 403b being terminated by the employer owe surrender fees to transfer their money? Thanks.

Francis

[Pat B]

Francis, surrender charges are very prevalent in annuity products. In many cases these are either not explained by the selling agent, or not paid attention to by the buyer when explained.

Regarding your plan, do you individually own the existing contract?

If you do, as opposed to the employer owning your contract, then you can not be "forced" to move your monies. The concept of termination in 403b world comes with several landmines and this is probably biggest. If yours and your fellow employees own the contracts individually, then your employer may have a very difficult task ahead of them to terminate the plan.

Seek to clarify who actually owns the contract, my guess is you do. If so you have control not your employer so they can not force you to move the monies thus suffering a penalty. Just a few thoughts and I am sure others will offer their insight.

[fsrph]

Francis, surrender charges are very prevalent in annuity products. In many cases these are either not explained by the selling agent, or not paid attention to by the buyer when explained.

Regarding your plan, do you individually own the existing contract?

If you do, as opposed to the employer owning your contract, then you can not be "forced" to move your monies. The concept of termination in 403b world comes with several landmines and this is probably biggest. If yours and your fellow employees own the contracts individually, then your employer may have a very difficult task ahead of them to terminate the plan.

Seek to clarify who actually owns the contract, my guess is you do. If so you have control not your employer so they can not force you to move the monies thus suffering a penalty. Just a few thoughts and I am sure others will offer their insight.

Hi PatB,

I didn't get an official answer to who owns the contract but I think it's the individual employee. I learned what the non-profit company is going to do to get around the "seperation of service" issue is to terminate all employees, and let the for profit company (who bought the place) immediately rehire everyone. Then we are technically seperated from service from the non-profit and can rollover the money without surrender charges. Does this sound like a legitimate way to handle this problem? Thanks,

Francis

[intruder]

Francis, surrender charges are very prevalent in annuity products. In many cases these are either not explained by the selling agent, or not paid attention to by the buyer when explained.

Regarding your plan, do you individually own the existing contract?

If you do, as opposed to the employer owning your contract, then you can not be "forced" to move your monies. The concept of termination in 403b world comes with several landmines and this is probably biggest. If yours and your fellow employees own the contracts individually, then your employer may have a very difficult task ahead of them to terminate the plan.

Seek to clarify who actually owns the contract, my guess is you do. If so you have control not your employer so they can not force you to move the monies thus suffering a penalty. Just a few thoughts and I am sure others will offer their insight.

Hi PatB,

I didn't get an official answer to who owns the contract but I think it's the individual employee. I learned what the non-profit company is going to do to get around the "seperation of service" issue is to terminate all employees, and let the for profit company (who bought the place) immediately rehire everyone. Then we are technically seperated from service from the non-profit and can rollover the money without surrender charges. Does this sound like a legitimate way to handle this problem? Thanks,

Francis

Francis:

You need to review the terms of your contract to determine if surrender charges are due if you withdraw the funds after the plan is terminated. While dsistributions are permitted under a 403b plan under the regs upon separation from service, the insurance contract will state whether surrender charges will be imposed if funds are withdrawn after the plan is terminated.

[Pat B]

Francis, surrender charges are very prevalent in annuity products. In many cases these are either not explained by the selling agent, or not paid attention to by the buyer when explained.

Regarding your plan, do you individually own the existing contract?

If you do, as opposed to the employer owning your contract, then you can not be "forced" to move your monies. The concept of termination in 403b world comes with several landmines and this is probably biggest. If yours and your fellow employees own the contracts individually, then your employer may have a very difficult task ahead of them to terminate the plan.

Seek to clarify who actually owns the contract, my guess is you do. If so you have control not your employer so they can not force you to move the monies thus suffering a penalty. Just a few thoughts and I am sure others will offer their insight.

Hi PatB,

I didn't get an official answer to who owns the contract but I think it's the individual employee. I learned what the non-profit company is going to do to get around the "seperation of service" issue is to terminate all employees, and let the for profit company (who bought the place) immediately rehire everyone. Then we are technically seperated from service from the non-profit and can rollover the money without surrender charges. Does this sound like a legitimate way to handle this problem? Thanks,

Francis

Francis:

You need to review the terms of your contract to determine if surrender charges are due if you withdraw the funds after the plan is terminated. While dsistributions are permitted under a 403b plan under the regs upon separation from service, the insurance contract will state whether surrender charges will be imposed if funds are withdrawn after the plan is terminated.

I agree the contract dictates if the surrender charges are assessed and what they would be, and insurance companies are not in the business of letting them slide.

I'd be curious to hear intruder's or others views that even if the non-profit "terminates" all employees they still have little no recourse to force you to move your monies. For example, lets take all other factors away and assume you simply terminated employement on your own. You would not be obligated to move your monies unless you choose to in this arrangement, your employer has no say.

Now move to current circumstance, I think your employer new or old has no ability to make you move your monies. Therefore they do not have a terminated plan, in the IRS' eyes.

Let's see what other thoughts are on the subject,,,,

[intruder]

Whether an employee must give consent to withdraw funds after termination of the 403b plan depends on the type of funding for the plan. If mutual fuinds are used the custodian has the right to terminate the custodial agreement on 30 days notice and distribute the funds to a participant who does not elect to transfer the funds to another provider or IRA. Some group annuities permit termination of the agreement by the employer.

In order for a 403b plan to be considered terminated all of the assets must be distributed as soon as administratively practiable and distribution includes delivery of a fully paid individual annuity contract. The IRS regs do not define administratively practicable and some carriers are notifying to participants holding individual contracts in a terminated 403b plan that the contracts have been 'delivered' to them.

[fsrph]

Whether an employee must give consent to withdraw funds after termination of the 403b plan depends on the type of funding for the plan. If mutual fuinds are used the custodian has the right to terminate the custodial agreement on 30 days notice and distribute the funds to a participant who does not elect to transfer the funds to another provider or IRA. Some group annuities permit termination of the agreement by the employer.

In order for a 403b plan to be considered terminated all of the assets must be distributed as soon as administratively practiable and distribution includes delivery of a fully paid individual annuity contract. The IRS regs do not define administratively practicable and some carriers are notifying to participants holding individual contracts in a terminated 403b plan that the contracts have been 'delivered' to them.

Thanks everyone for the replies. When it was stated that "if mutual funds were used" is that by anyone in the plan or just in my holdings? In our plan mutual funds are an option, although I never have used them myself. My 403B was always only in the fixed guaranteed rate. What our employer said was if we don't move the money ourselves, in 60 days they will move it to the new (for profit company) provider in their MM fund. I would have to check on the surrrender fees and under what conditon they are waived. Thanks.

Francis