bWise Forums: Revenue Ruling 73-124 - bWise Forums

As we all know the 403(b) market place is dominated by commissioned vendors. In 1973 when RR 73-124 was issued the annuity was the only investment medium allowed. Except for the 403(b) issued by T/C all 403b arrangements were of the loaded fixed and variable annuity variety. BTW T/C was kind of late in offering the 403(b) as a voluntary salary reduction plan and definitely did not offer it to the k-12 group until decades later. What a shame! But that's history.

RR 73-124 required the following in order for a participant to change annuity issuers: 1. The participant had to surrender the value of the old contract in favor of the employer and 2. Under a binding agreement the er agreed to use the proceeds to purchase another annuity contract on behalf of the ee from a different issuer. The IRS felt that it had to be done this way because of the non-transferability rules under section 401(g).

In Rev. Rul. 90-24 the IRS recognized that section 401(g) would not be violated if the check for the proceeds is cut in favor of the new carrier for the benefit of the participant directly. So over the last 15 years more and more individuals have taken advantage of this ruling to invest their 403b funds with the carrier of their own choosing when the er's menu excludes no-load funds. By the same token the commissioned salesman has used the simplicity of RR 90-24 to effectuate transfers from one loaded carrier to another.

In my view RR 90-24 along with the popular press have been a great impetus for the growth of no-load funds on the 403(b) menu. I do not see a reversal just because the proposed regs say that a RR 90-24 transfer may only take place among er approved carriers. In my view such a restriction on transfers will be a further impetus for employers to make sure that no-loads are on the menu.

Peace and Hope,
Joel L. Frank