Under current law, "90-24 Transfers" are governed by IRS Revenue Ruling 90-24, which permits
transfers among 403(b) vendors without school district involvement or oversight. The new
regulations change this approach. Under the new regulations, the school district and vendor
are required to enter into an agreement prior to allowing any "90-24 Transfers." This new rule
does no affect transfers or exchanges among investment funds within a single investment vehicle
but would affect transfers among investment providers or different contracts or custodial accounts
offered by a single provider. Moreover, the new rule would only affect the "90-24 Transfers" and
do not affect distributions upon termination of employment or otherwise.
The IRS has indicated that the new information-sharing requirements will apply as of
January 1, 2009 to "90-24 Transfers" that are completed after September 24, 2007. To clarify,
if a contract/account transfer is completed after September 24, 2007, it appears that the school
district will be required to negotiate and enter into an information-sharing agreement by
January 1, 2009 with the investment provider selected by the participant. Otherwise, the
participant’s new investment contract/account will be disqualified and become taxable as of
January 1, 2009.
At this time, there is still uncertainty about these new rules and it is not clear how easy it
will be to enter into the required information-sharing agreements with the investment providers.
In light of these considerations, we strongly recommend that employers impose a temporary freeze,
effective September 25, 2007 on all "90-24 Transfers." A temporary freeze will provide time for
clarification of the legal and practical implications of these new rules. We also recommend that
school districts advise their employees of this temporary freeze as soon as possible. If transfers
are allowed after September 24, 2007, the IRS could deem them as distributable events, which could
impose tax implications on the employee.
It is imperative that employers implement a long-term compliance program prior to the effective date
of January 1, 2009, so that 90-24 transfers can be allowed prior to that date.
If you have questions regarding 90-24 transfers or how CalSTRS 403(b) Comply, CalSTRS’ new program to
provide deferred compensation compliance and administration services to employers, can assist, please
call CalSTRS 403(b) Comply at 888-394-2060 or visit http://www.calstrs.com/403bComply
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