Watch Out For What Your Plans Say – Or Don’t Say – About Transfers

by | Nov 1, 2017 | Pension, Plan Administration, Plan Qualification

By: Jeff Chang

Most of the special districts and municipalities we represent have numerous collective bargaining units, and many have multiple service locations and facilities. While advising these entities on their retirement and welfare benefits, we’ve come to realize that their retirement plans often do not address a lot of day-to-day operational issues, including the treatment of intra-agency ‘transfers’. For example, most of the retirement plans we have reviewed do not adequately address the treatment of intra-agency “transfers:”

  • from union to non-union,
  • from non-union to union,
  • from one facility to another,
  • from an excluded position to an eligible position, etc.

Why is that?

Most retirement plans are drafted in terms of the average participant’s career with an entity: date of hire, date of plan entry, termination of employment and commencement of benefits. Few plans are drafted to deal with what happens when a collectively bargained employee (covered under one plan) transfers to an unrepresented position (or another facility) that is covered by a different plan.

Here is a short list of the kinds of issues that can arise — which your plan documents may not properly address:

  • Whether positions covered under other plans are “excluded.” You need properly coordinated plan language to avoid “overlapping coverage” — that is, an employee who is eligible for more than one retirement plan on a simultaneous basis.
  • Exactly when and how a transferred employee becomes eligible for and actually begins participation in a new plan. This is particularly important when it comes to defined contribution plans or plans that allow employee deferrals, such as 457(b) and 403(b) plans.
  • Whether your plan documents are consistent with relevant MOUs and/or employment agreements. Sometimes, for example, a promotion will result in the employee becoming eligible for another plan or benefit. Do the affected plans or benefit policies properly address this?
  • Situations where, to make your plan “work,” you end up treating “transfers” as “termination/re-hires.”  This practice can jeopardize the tax qualification of your retirement plans (because you are really making distributions at a time when the participant is not eligible for one) and can create serious labor issues because you may be forfeiting account balances and/or other accrued benefits (e.g., vacation, seniority) inappropriately.

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at or (916) 329-3685.

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