A law school classmate and partner at a major Michigan law firm dropped me a note the other day. She had one of those tricky 403(b) questions that seems easy enough on its face, but when you work through the details, it may actually be unanswerable. It epitomizes the problems we are facing in trying to implement the new 403(b) regs.

Her question was simple enough, and based on a fact pattern which many employers are now facing:

A school district is narrowing its vendors. A retired participant has his account with a vendor who is not on the school district’s new "approved" list. The participant wants to rollover his account to another 403(b) annuity that is not associated with his former employer, nor currently associated with any employer. We know if this was a rollover to an IRA, there would be no problem. But what are the chances the IRS would treat a rollover to a non-employer related 403(b) as a contract exchange rather than a rollover, and require an information sharing agreement?

There is a tempting easy answer: a rollover is a rollover, and no information sharing agreement is required. But then you start thinking about it some more, and find that there are a number of "hidden" issues. Let's work through what would happen here. 

WARNING: The following may, at first, sound absurd.

1.  If a 403(b) participant has a distributable event, she can rollover her money from the plan into an IRA or another 403(b) plan. Easy. No information sharing agreement is needed.  An alternative is for the employer to do a contract exchange, but why go through that hassle?

2.  Unlike under a 401(k) plan, where technically the plan administrator must approve a rollover, there is no requirement of approval under a 403(b) arrangement. The 403(b) plan document, however, must have the rollover language in it. Many times employers will not permit rollovers, even with a distributable event, if the employee is still working. If the plan imposes this requirement, and the plan is funded with individual contracts, make sure the contracts reflect that rule.

3.  If the old contract is not part of the plan by virtue of being one of those "grandfathered" or "orphaned" contracts under Rev. Proc. 2007-71, it doesn't matter what the plan says. But can a vendor rely upon employer representations that a distributable event has occurred (2007-71 only allows reliance on representation of employment status, not other events like age)? Will the vendors require information from the former employer, which triggers an information sharing agreement?

4.  Rollovers are permitted to another "plan." If the rollover is to a 403(b) contract not associated with a "plan," will vendors accept rollovers under these circumstances? This REALLY raises the question of what to do with that recipient contract which is not associated with any plan. How will a vendor choose to administer it? Under the pre-2007 rules? Which ones? Can you still do 90-24 transfers from those arrangements? Can you rely upon employee representations for compliance, or does this means there can be no features like loans? There are many other questions.

5. So, getting back to the original question, I would think that the rollover should be a no-brainer. But it is not altogether clear. 

I warned you that this would be absurd.