Full Version: Transfer assets from 457 to 401k of same employer
Our client is a utility district that maintains a 401k plan as well as a 457 plan. We don't do anything for the 457 plan so I'm really not familiar w/ all of the rules but I have read that rollovers can be made from a 457 plan into a 401k plan. The client would like to terminate the 457 plan and roll/merge those assets into the 401k plan. I'm reading the Regulations and see the requiremetns for plan-to-plan transfers but I'm not sure this will help me. The regs keep referring to transfers among eligible governmental plans. If i go to the 457 definitions i see that an eligible plan is another 457 plan, is this correct? My bottom line question is can the 457 terminate and have the assets merged into the 401k plan w/out offering participants a chance to take distributions? If so, is there a regulation that I'm missing that permits this?
Merged, thus forcing the funds into the 401(k) plan? I don't think so, for exactly the reason you have found, but we'll see what other commentators say.
The 457(b) plan can be terminated and distribution election forms can be provided which offer the usual options plus an option to roll over to the 401(k) plan (if the 401(k) accepts rollover contributions). I see that's not what you want though.
But wait, what if an employee wants to use the money before age 59 1/2? 457(b) plans do not have a 10% early withdrawal penalty, but as soon as that money leaves the 457(b) plan, it loses that nice feature. Is there some reason they don't want the 457(b) plan anymore? Is it, perhaps, to lower the 401(k) asset fees by bringing the 401(k) asset level up to the next fee breakpoint? If so, see if the provider can bundle both plans' asset amounts together when determining the asset level for the fee breakpoint (assuming both plans' assets are with one asset gatherer).
The 457(b) plan can be terminated and distribution election forms can be provided which offer the usual options plus an option to roll over to the 401(k) plan (if the 401(k) accepts rollover contributions). I see that's not what you want though.
But wait, what if an employee wants to use the money before age 59 1/2? 457(b) plans do not have a 10% early withdrawal penalty, but as soon as that money leaves the 457(b) plan, it loses that nice feature. Is there some reason they don't want the 457(b) plan anymore? Is it, perhaps, to lower the 401(k) asset fees by bringing the 401(k) asset level up to the next fee breakpoint? If so, see if the provider can bundle both plans' asset amounts together when determining the asset level for the fee breakpoint (assuming both plans' assets are with one asset gatherer).
QUOTE (J4FKBC @ Sep 5 2007, 03:40 PM) 
Merged, thus forcing the funds into the 401(k) plan? I don't think so, for exactly the reason you have found, but we'll see what other commentators say.
The 457(b) plan can be terminated and distribution election forms can be provided which offer the usual options plus an option to roll over to the 401(k) plan (if the 401(k) accepts rollover contributions). I see that's not what you want though.
But wait, what if an employee wants to use the money before age 59 1/2? 457(b) plans do not have a 10% early withdrawal penalty, but as soon as that money leaves the 457(b) plan, it loses that nice feature. Is there some reason they don't want the 457(b) plan anymore? Is it, perhaps, to lower the 401(k) asset fees by bringing the 401(k) asset level up to the next fee breakpoint? If so, see if the provider can bundle both plans' asset amounts together when determining the asset level for the fee breakpoint (assuming both plans' assets are with one asset gatherer).
The 457(b) plan can be terminated and distribution election forms can be provided which offer the usual options plus an option to roll over to the 401(k) plan (if the 401(k) accepts rollover contributions). I see that's not what you want though.
But wait, what if an employee wants to use the money before age 59 1/2? 457(b) plans do not have a 10% early withdrawal penalty, but as soon as that money leaves the 457(b) plan, it loses that nice feature. Is there some reason they don't want the 457(b) plan anymore? Is it, perhaps, to lower the 401(k) asset fees by bringing the 401(k) asset level up to the next fee breakpoint? If so, see if the provider can bundle both plans' asset amounts together when determining the asset level for the fee breakpoint (assuming both plans' assets are with one asset gatherer).
I agree on the merger issue.
You will also lose the ability use both the 401(k)/402(g) annual amount and the 457 annual amount and catch-ups.
Have you explored joint administration as a way of bringing down costs? Essentially, the two plans form a master trust-type vehicle, and share an internet site (showing, e.g., 457 Plan Account, 403(b) Salary Reduction Account and 403(b) Matching Account). It's not as cheap as one plan, but it's cheaper than two.
Tom Geer
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