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Q: Now that my association is again allowed to sponsor 401(k) plans for staff, may we roll the assets of our other benefit plans into a new 401(k)?

A: The recently enacted Small Business Job Protection Act of 1996 permits tax-exempt employers to adopt 401(k) plans beginning on January 1, 1997. Since the Tax Reform Act of 1986, many tax-exempt employers were not permitted to offer 401(k) plans. However, numerous 501(c)(3) and 501(c)(6) organizations have maintained other types of "qualified retirement plans" for their employees. In addition, 501(c)(3) organizations, but no other category of exempt organizations, were (and still are) permitted to maintain 403(b) programs whereby employees are permitted to defer salary into 403(b) annuities or custodial accounts.

The new law permits tax-exempt organizations to establish new 401(k) plans. It also permits an employer to roll the assets from certain qualified retirement plans (except 403(b) plans) to a new 401(k) plan. Section 501(c)(3) organizations are not permitted to roll assets from 403(b) annuities or custodial accounts into a 401(k) plan. An association also may not move Section 457 deferred compensation plan assets into a 401(k) plan.

Rolling assets from another qualified retirement plan to a 401(k) plan may be as easy as the employer amending its current defined contribution plan to permit employees to make 401(k) contributions, or it can be as difficult as terminating its current pension plan and distributing all the assets to participants. Under the latter scenario, the participants could choose to transfer their shares of assets to the new 401(k) plan or roll the distribution into another qualified retirement vehicle, such as an Individual Retirement Account.
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Title Annotation:new 401(k) plans under the Small Business Job Protection Act of 1996
Author:Collins, Michael J.
Publication:Association Management
Date:Dec 1, 1996
Previous Article:Technology and governance.
Next Article:Leading responsibly.

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