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Transferring Assets to a 457

Q. You have a client enrolled in the state 457 plan through an insurer. When she enrolled in the plan she worked for the state Department of Public Instruction. She terminated with them and was employed by a school district in the state. Both are entities of the state and have the same retirement plan. Paperwork was submitted to the state to transfer the assets to the 457 plan through the local school district. The school district does not offer the statewide 457 plan, yet has options with multiple providers under their plan document. The state 457 plan rejected the request, and said that she is still with the state and they cannot honor the transfer request.

Earlier this year in a similar situation, another employee left one school district in that state and moved to another, and the state processed the transfer (both entities of the state as well).

How does one define the terms “employer” and “termination” for 457 plans? In a 403(b) plan “employer” is defined as the local employer (district). Is that not so with 457 plans as well?

A. There is no difference in this regard between a 403(b) and a 457(b) plan. The employer is the entity that employs the employee (so who pays their salary!). If they honored the transfer for the 403(b), they should honor it as well for the 457 plan. There was some confusion at the IRS level as to “who was the employer” early on in the 403(b) sample plan language, but the industry set that record straight. Plus they need to understand if the employer is audited by the IRS, it is the employer who would need to show the amounts for their employees under the plan. If the amounts are not being transferred to the new employer that could become an audit issue.

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