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detailgal

Plan Termination

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Hello Helpful People!

 

Simple quesiton: After our upcoming mtg with our 403(b) annuity-based plan rep and a rep from ING (our, being the cfo, exec dir and myself, employee who's learned from you all), the agency may want to terminate the ING plan and open a different plan. Aside from surrender fees they will have to pay and possibly some kind of additional penalty written into the contract, is there any legal barrier to this?

 

Thanks,

 

DetailGal

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Guest Sierra

no!! JUST DO IT! INSTRUCT YOUR LAWYER TO NEGOTIATE AWAY THE FEES====ING ALREADY MADE ITS BUNDLE ON THE BACKS OF THE PARTICIPANTS.

 

HERE IS ALL THE REASONS YOU NEED NEVER TO HAVE A VA FOR YOUR 403(b). IT IS PROOF POSITIVE THAT THE PRIOR EXECUTIVES THAT ADOPTED THIS ROUTE FOR 403B DID NOT READ A ROAD MAP!!!

 

Even if the er reimburses the participant for the exit fees it is a fee that hurts the ee because it will be reflected (most probably) in a smaller salary increase down the line. Well life is an adventure; we all live and learn.

 

Peace and hope,

Joel L. Frank

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"Instruct your lawyer to negotiate away the fees"?

 

Hee hee.

 

Abracadabra! They're gone!

 

ING (or any other company) will have no incentive to waive these fees, of course. "Negotiation" is a process that involves give AND take, not just take, and if you're going to ask them to waive fees, you're going to have to offer them something in return. The fact that you're terminating the plan removes pretty much any incentive they might have, which is why they would write such fees into the contract to begin with. Nevertheless, can't hurt to ask.

 

I'm assuming that the cost structure of the plan you'll adopt in its place will more than pay for any lost money due to fees over the next several years, yes? And that someone has done the math needed to determine when the break-even point is?

 

 

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detailgal, there is no legal barrier, but there is also nothing which requires the existing vendor to transfer existing funds to a new vendor.

 

Transfers from one 403(b) account to another is permitted under the provisions of Revenue Ruling 90-24. However, this ruling is permissive, in that it allows transfers to be made: It does not require an existing vendor to participate in the transfer. But, if they do, you can be certain that any contractual charges will be imposed.

 

You may want to consider simply re-directing new contributions to new accounts, leaving past contributions with the current vendor until the charges wear off. You'll have to put a pencil to it to see which alternative is best for your employees.

 

Incidentally, if any of the participants have met a "qualifing event," distributions can be made and transferred to another 403(b) account. In this instance, the existing vendor is required to participate in the transaction. But, charges will be imposed in this instance, as well.

 

Hope this is of some benefit to you. Good luck!

 

 

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There maybe with respect to securities laws and ERISA. You (and the new rep) need to be able to justify the expenses involved with both sides of the transaction. If audited, the DOL will require you to demonstrate that the transfer is in the best interest of the employees. Securities laws require that both transaction, the sell and the buy, are reasonable and suitable.

 

Finally, although the tax law may not require the vendor to transfer funds, securities laws do require that client orders are executed on a timely basis.

 

Mark Fischer

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Thanks All,

 

The decision about terminating has not yet been made. It will depend, for one, on what the plan and ING rep have to say at this Friday's mtg. Fee negotiation will be on the table (according to our cfo). I have provided them with info on low-cost plans and lower-cost annuity plans to compare with ING's average fund fees (including 1.25% m&e) of 2.10%, surrender fees etc. I have also told them that my priority is building wealth for retirement rather than paying high fees for others' emergency cash needs (I suggested a savings account rather than the "loan option"). I have also told them that we are paying high fees for an annuitization option that is also available later through transfer to an immediate annuity (low-cost in my case). We only have 16 participants, so the idea of adding a plan is not attractive to the cfo and exec dir. The final decision will be up to them.

 

RE: 90-42 transfer: I thought that the vendor had to allow for it if the employer agreed to sign off on it. Can you cite the reference for your statement (not meant as a challenge, I just want to be well-equipped in response to whatever the rep/ING have to say).

 

Thanks again.

DetailGal

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My statement regarding Rev. Rul. 90-24 being permissive rather than mandatory is based on accepted interpretation of the ruling itself. The ruling doesn't require vendors to make transfers, so some of them fall back on the 403(b)(11) restrictions requiring a qualifying event before money can be released.

 

To add to this argument, annuity contracts and custodial agreements must contain language that restricts distributions to those situations involving a qualifying event. So, some vendors take the position that transfers can't take place because they can't legally distribute the funds without such an event.

 

Contrast this to the provisions regarding direct rollovers. In these situations, a qualifying event occurs, triggering a distribution. In these instances, vendors MUST allow for direct rollovers to another qualified retirement plan, including IRAs.

 

In summary, it's a matter of how vendors interpret Rev. Rul. 90-24. Most permit transfers these days, but a few do not. It's a good idea to check. And, if they do, they will likely still impose their charges for early withdrawals.

 

Hope this helps. Good luck to you.

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Mike is correct from a tax law standpoint.

 

From a security law standpoint, they have to transfer the funds, if the client so instructs.

 

Mark

 

Mark, would I be correct in assuming that while the company must transfer the funds if the client so instructs, they are under no legal obligation to do so free of fees, surrender charges, etc., that might be present in the contract?

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The surrendering company is entitled to whatever fees are specified in the contract.

 

Both laws prevail. The tax law governs the tax treatment of the transactions. Securities laws govern the offer and sale of the security.

 

Mark

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Mark and Michael,

 

Thank you. Very helpful. Our contract does state that 90-24 transfers are allowed if the exec dir/fiduciary agrees to sign off on them. Then again, "all" will be revealed tomorrow in the mtg, hopefully no big surprises.

 

Thanks again to all for your interest and assistance.

 

DG

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I'm interested in what was concluded re establishing a new plan, Detailgal. I am in a similar situation now evaluating our current VA TSA with AXA in terms of fees, protecting retirement savings and flexibility.

 

To the group: I've been going back to your old postings trying to learn how to what all these fees mean and how to determine how much of them we are paying. Surrender fees for us is as much as 6%.

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