Please help, need replies by April 7, 1999. The county hospital my mother has worked at for approx 17 yrs is being sold to a for profit organization. Her personnel dept has informed her that she has to "cash out" her 457 plan and pay taxes on the amount, then re-invest in another retirement account. She is currently 61 and 3/4 and plans to retire at 65. Here are her questions:

1. Does she have to cash out the Valic 457 plan or can she freeze it or rollover into another account?

2. Is there a time limit to rollover (if possible) into another account?

3. If rollover is possible, what investment agencies carry 457 accounts?

4. Can She voluntarily contribute into a frozen 457 account?

In replies please include any references to federal or state codes. Valic has been unable or refuses to answer questions or return phone calls concerning this situation.

thanks in advance

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Johnny

This is a problem! Unfortunately, once her employer becomes a for-profit, the plan would lose the ERISA exemption in ERISA section 4(B)(1). Thus, it would become subject to a host of ERISA requirements.

Moreover, one of the ERISA requirements (under ERISA section 403) is that the plan be funded by a trust. Because the plan is not a qualified plan, no further contributions could be made to the plan once it was funded and operated by a for-profit hospital without causing the participants to be taxed on the contributions when they became vested, even though they would not receive those contributions for many more years. Internal Revenue Code section 402(B).

Given the complexity of complying with the ERISA rules, in order to maintain a plan to which no future contributions could be made anyway, it is understandable that the employer wants to terminate the plan. And unfortunately, the rollover rules of Internal Revenue Code sections 402, 403, and 408 do not apply to 457 plans. (You can click here for a description of legislation which would change this rule.) Thus, the only way to defer tax on a benefit from a 457 plan is under Internal Revenue Code section 457(e)(10), which provides for transfers between 457 plans. And such a transfer would not be practical in this case because a for-profit hospital is not an "eligible employer" for purposes of a section 457 plan. Internal Revenue Code section 457(e)(1).
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Employee benefits legal resource site

Thank you for your response. Is it possible for her to freeze the account by not making any contributions, or does she actually have to receive the lump sum payment?

If, as I would anticipate, the employer eliminates the plan in order to avoid the need for ERISA compliance, she would actually have to receive the lump sum.
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Employee benefits legal resource site