Q. Suppose you have a client who works with public schools and deals with 457(b) and 403(b) annuity and custodial accounts. A third party administrator (TPA) told your client that as of Jan 1, 2017 they would no longer allow 457(b) transfer/exchanges from one approved vendor to another within the same school district. Your client began penalty free transfer/exchanges last year from one approved vendor to another approved vendor and now is told he cannot do any more until he reaches a qualifying event. She now has to keep two plans. Another TPA says they still allow these transfer/exchanges.
A. It is important to note that 457(b) are plans that have “investments” and do not have to be structured like the 403(b). However, since school districts are used to the terms exchanges, and transfers, most TPAs permit a similar movement of money between the approved providers as you would have in a 403(b). TPAs can make the rules more stringent as long as the Plan document states that as well. There should only be one plan with multiple investment options, so the answer would not be to have two “plans”, but rather a choice for investments. I would ask to see the plan and the restriction that they are indicating is now a part of the plan.