Important Notice: Final IRS 403(b) Regulations
Revise Plan-to-Plan Transfer Rules
Recently, the IRS issued final regulations that affect 403(b) plans. Most
of the new rules don’t take effect until the 2009 tax year; however, rules
governing certain plan-to-plan transfers will go into effect much sooner.
Effective after September 24, 2007, Revenue Ruling 90-24 transfers—participant-initiated transfers of
assets from one 403(b) plan provider to another 403(b) plan provider—will no longer be allowed.*
Rather, plan-to-plan transfers initiated after September 24, 2007 can only occur if the new 403(b)
plan’s contract includes distribution restrictions that are no less stringent than those imposed on
the contract being exchanged and the employer sponsoring the 403(b) plan must also enter into an
agreement with the plan provider of the new contract.
This written agreement must stipulate that both the employer and the plan provider agree to share
certain information (such as information about the plan participant’s employment, other 403(b) or
qualified employer plans, severance and hardship information, and plan loan information) in order to
ensure compliance with tax requirements.
The IRS is allowing employers until January 1, 2009 to comply with the new rules and establish
written agreements with the receiving companies that permit such exchanges; however, if written
agreements are not established by January 1, 2009 then such transfers will be considered taxable
distributions rather than tax-free transfers.
The IRS ruling leaves uncertainty about what these written agreements need to contain.
However, it is clear that the tax-favored status of a participant’s transfer hinges on these
agreements and, unless properly executed agreements are in place, there can be no assurance
that a transfer will be viewed as a non-taxable event.
* Note: Prior to the final 403(b) plan regulations, plan-to-plan transfers (formerly permitted under Revenue Ruling
90-24) occurred when a participant initiated a transfer between plans. No coordination between the participant’s
employer and plan provider was required and, as long as the receiving 403(b) plan’s transfer requirements were the same
or more stringent than the distribution requirements of the plan disbursing the assets, such a transfer was treated as a
non-taxable event.
What this means to our shareholders
In light of this ruling, shareholders who wish to initiate a 90-24 transfer under the current IRS rules
(that is, prior to the new rules that go into effect after September 24, 2007) can choose to:
- Request a 90-24 transfer to a Van Kampen Custodial 403(b) account. We will continue
to accept requests for 90-24 transfer of assets into a Van Kampen 403(b) account, provided a
properly executed request is received by Van Kampen by the close of business on September 17,
2007 and the current custodian has received and agreed to the transfer request on or before
September 24, 2007. A properly executed request will include Van Kampen’s completed 403(b)
transfer request form and, if applicable, a completed 403(b) account application.
- Request a 90-24 transfer from a Van Kampen Custodial 403(b) account. We will continue
to process transfers of assets from a Van Kampen 403(b) account to a 403(b) account held with
an outside custodian if the request is received on or before the close of business on September
24, 2007. A properly executed request must include the participant’s signature and a letter of
acceptance from the outside custodian.
Van Kampen does not provide tax advice. The tax information contained herein is general and is not
exhaustive by nature. It was not intended or written to be used, and it cannot be used by any taxpayer,
for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws.
Federal and state tax laws are complex and constantly changing. You should always consult your own
legal or tax advisor for information concerning your individual situation.
| To learn more about the new IRS 403(b) rules please refer to the
IRS Web site at www.irs.gov/retirement/index.html. |
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