Reg. § 1.403(b)-10 Miscellaneous provisions.
(a) Plan terminations and frozen plans
(1) In general An employer is permitted to amend its section plan to eliminate future contributions for existing participants or to limit participation to existing participants and employees (to the extent consistent with ). A section plan is permitted to contain provisions that provide for plan termination and that allow accumulated benefits to be distributed on termination. However, in the case of a section contract that is subject to the distribution restrictions in or (relating to custodial accounts and section elective deferrals), termination of the plan and the distribution of accumulated benefits is permitted only if the employer (taking into account all entities that are treated as the same employer under section , (c), (m), or (o) on the date of the termination) does not make contributions to any section contract that is not part of the plan during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan. However, if at all times during the period beginning 12 months before the termination and ending 12 months after distribution of all assets from the terminated plan, fewer than 2 percent of the employees who were eligible under the section plan as of the date of plan termination are eligible under the alternative section contract, the alternative section contract is disregarded. To the extent a contract fails to satisfy the nonforfeitability requirement of at the date of plan termination, the contact is not, and cannot later become, a section contract. In order for a section plan to be considered terminated, all accumulated benefits under the plan must be distributed to all participants and beneficiaries as soon as administratively practicable after termination of the plan. For this purpose, delivery of a fully paid individual insurance annuity contract is treated as a distribution. The mere provision for, and making of, distributions to participants or beneficiaries upon plan termination does not cause a contract to cease to be a section contract. See for rules regarding the tax treatment of distributions, including under which an eligible rollover distribution is not included in gross income if paid in a direct rollover to an eligible retirement plan or if transferred to an eligible retirement plan within 60 days.
(2) Employers that cease to be eligible employers An employer that ceases to be an eligible employer may no longer contribute to a section contract for any subsequent period, and the contract will fail to satisfy if any further contributions are made with respect to a period after the employer ceases to be an eligible employer.
(b) Contract exchanges and plan-to-plan transfers
(1) Contract exchanges and transfers
(i) General rule If the conditions in of this section are met, a section contract held under a section plan is permitted to be exchanged for another section contract held under that section plan. Further, if the conditions in of this section are met, a section plan is permitted to provide for the transfer of its assets (including any assets held in a custodial account or retirement income account that are treated as section contracts) to another section plan. In addition, if the conditions in of this section (relating to permissive service credit and repayments under section ) are met, a section plan is permitted to provide for the transfer of its assets to a qualified plan under section . However, neither a qualified plan nor an eligible governmental plan under section may transfer assets to a section plan, and a section plan may not accept such a transfer. In addition, a section contract may not be exchanged for an annuity contract that is not a section contract. Neither a plan-to-plan transfer nor a contract exchange permitted under this is treated as a distribution for purposes of the distribution restrictions at . Therefore, such a transfer or exchange may be made before severance from employment or another distribution event. Further, no amount is includible in gross income by reason of such a transfer or exchange.
(ii) ERISA rules See for other rules that are applicable to section plans that are subject to section 208 of the Employee Retirement Income Security Act of 1974 (88 Stat. 829, 865).
(2) Requirements for contract exchange within the same plan
(i) General rule A section contract of a participant or beneficiary may be exchanged under of this section for another section contract of that participant or beneficiary under the same section plan if each of the following conditions are met:
(A) The plan under which the contract is issued provides for the exchange.
(B) The participant or beneficiary has an accumulated benefit immediately after the exchange that is at least equal to the accumulated benefit of that participant or beneficiary immediately before the exchange (taking into account the accumulated benefit of that participant or beneficiary under both section contracts immediately before the exchange).
(C) The other contract is subject to distribution restrictions with respect to the participant that are not less stringent than those imposed on the contract being exchanged, and the employer enters into an agreement with the issuer of the other contract under which the employer and the issuer will from time to time in the future provide each other with the following information:
(1) Information necessary for the resulting contract, or any other contract to which contributions have been made by the employer, to satisfy section , including information concerning the participant's employment and information that takes into account other section contracts or qualified employer plans (such as whether a severance from employment has occurred for purposes of the distribution restrictions in and whether the hardship withdrawal rules of are satisfied).
(2) Information necessary for the resulting contract, or any other contract to which contributions have been made by the employer, to satisfy other tax requirements (such as whether a plan loan satisfies the conditions in section so that the loan is not a deemed distribution under section ).
(ii) Accumulated benefit The condition in of this section is satisfied if the exchange would satisfy section if the exchange were a transfer of assets.
(iii) Authority for future guidance Subject to such conditions as the Commissioner determines to be appropriate, the Commissioner may issue rules of general applicability, in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see ), permitting an exchange of one section contract for another section contract for an exchange that does not satisfy of this section. Any such rules must require the resulting contract to set forth procedures that the Commissioner determines are reasonably designed to ensure compliance with those requirements of section or other tax provisions that depend on either information concerning the participant's employment or information that takes into account other section contracts or other employer plans (such as whether a severance from employment has occurred for purposes of the distribution restrictions in , whether the hardship withdrawal rules of are satisfied, and whether a plan loan constitutes a deemed distribution under section ).
(3) Requirements for plan-to-plan transfers
(i) In general A plan-to-plan transfer under of this section from a section plan to another section plan is permitted if each of the following conditions are met—
(A) In the case of a transfer for a participant, the participant is an employee or former employee of the employer (or the business of the employer) for the receiving plan.
(B) In the case of a transfer for a beneficiary of a deceased participant, the participant was an employee or former employee of the employer (or business of the employer) for the receiving plan.
(C) The transferor plan provides for transfers.
(D) The receiving plan provides for the receipt of transfers.
(E) The participant or beneficiary whose assets are being transferred has an accumulated benefit immediately after the transfer that is at least equal to the accumulated benefit of that participant or beneficiary immediately before the transfer.
(F) The receiving plan provides that, to the extent any amount transferred is subject to any distribution restrictions under , the receiving plan imposes restrictions on distributions to the participant or beneficiary whose assets are being transferred that are not less stringent than those imposed on the transferor plan.
(G) If a plan-to-plan transfer does not constitute a complete transfer of the participant's or beneficiary's interest in the section plan, the transferee plan treats the amount transferred as a continuation of a pro rata portion of the participant's or beneficiary's interest in the section plan (for example, a pro rata portion of the participant's or beneficiary's interest in any after-tax employee contributions).
(ii) Accumulated benefit The condition in of this section is satisfied if the transfer would satisfy section .
(4) Purchases of permissive service credit by contract-to-plan transfers from a section 403(b) contract to a qualified plan
(i) General rule If the conditions in of this section are met, a section plan may provide for the transfer of assets held in the plan to a qualified defined benefit plan that is a governmental plan (as defined in section ).
(ii) Conditions for plan-to-plan transfers A transfer may be made under this only if the transfer is either—
(A) For the purchase of permissive service credit (as defined in section ) under the receiving defined benefit plan; or
(B) A repayment to which section does not apply by reason of section .
(c) Qualified domestic relations orders In accordance with the second sentence of section , any distribution from an annuity contract under section (including a distribution from a custodial account or retirement income account that is treated as a section contract) pursuant to a qualified domestic relations order is treated in the same manner as a distribution from a plan to which section applies. Thus, for example, a section plan does not fail to satisfy the distribution restrictions set forth in , , or merely as a result of distribution made pursuant to a qualified domestic relations order under section , so that such a distribution is permitted without regard to whether the employee from whose contract the distribution is made has had a severance from employment or another event permitting a distribution to be made under section . In the case of a plan that is subject to title I of ERISA, see also section 206(d)(3) of ERISA under which the prohibition against assignment or alienation of plan benefits under section 206(d)(1) of ERISA does not apply to an order that is determined to be a qualified domestic relations order.
(d) Rollovers to a section 403(b) contract
(1) General rule A section contract may accept a contribution that is an eligible rollover distribution (as defined in section ) made from another eligible retirement plan (as defined in section ). Any amount contributed to a section contract as an eligible rollover distribution is not taken into account for purposes of the limits in , but, except as otherwise specifically provided (for example, at ), is otherwise treated in the same manner as an amount held under a section contract for purposes of through and this section.
(2) Special rules relating to after-tax employee contributions and designated Roth contributions A section plan that receives an eligible rollover distribution that includes after-tax employee contributions or designated Roth contributions is required to obtain information regarding the employee's section basis in the amount rolled over. A section plan is permitted to receive an eligible rollover distribution that includes designated Roth contributions only if the plan permits employees to make elective deferrals that are designated Roth contributions.
(e) Deemed IRAs See regulations under section for special rules relating to deemed IRAs.
(f) Defined benefit plans
(1) Defined benefit plans generally Except for a TEFRA church defined benefit plan as defined in of this section, section does not apply to any contributions or accrual under a defined benefit plan.
(2) TEFRA church defined benefit plans See section 251(e)(5) of the Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248, for a provision permitting certain arrangements established by a church-related organization and in effect on September 3, 1982 (a TEFRA church defined benefit plan) to be treated as section contract even though it is a defined benefit arrangement. In accordance with section , for purposes of applying section to a TEFRA church defined benefit plan, the accruals under the plan are limited to the maximum amount permitted under section when expressed as an annual addition, and, for this purpose, the rules at for determining the present value of an accrual under a nonqualified defined benefit plan also apply for purposes of converting the accrual under a TEFRA church defined benefit plan to an annual addition. See section for additional limits applicable to TEFRA church defined benefit plans.
(g) Other rules relating to section 501(c)(3) organizations See section and regulations thereunder for the substantive standards for tax-exemption under that section, including the requirement that no part of the organization's net earnings inure to the benefit of any private shareholder or individual. See also sections (self dealing), 4945 (taxable expenditures), and 4958 (excess benefit transactions), and the regulations thereunder, for rules relating to excise taxes imposed on certain transactions involving organizations described in section .
[T.D. 9340, 72 FR 41144, July 26, 2007, as amended by 75 FR 65566, Oct. 26, 2010]