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School Districts And Irs Laws?

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What IRS laws and other laws regarding 403b's and 403b7's are public school districts under the jurisdiction of? Or to put the question some other ways:

1) Can a school district simply authorize an employee to select their own 403b or 403b7 vendor? Why or why not?

2) What is a school district's legal responsibility regarding 403b accounts?

3) Are those responsibilities different when the salary deduction is a 403b7?

4) Can employees take a 403b7 salary deduction? Why or why not?

5) What is a school district's ethical responsibility for its employees regarding 403b/403b7 salary deductions? Is there a written standard of ethics for school districts to follow?

Somehow, I think there may be a connection to my questions related to hold harmless/indemnity agreements.

Please advise. Thanks for your expected responses. Any help will be appreciated.

 

Yours in education,

PAB

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I think PAB's post relates to an earlier question I also had.

 

In searching for creative solutions, can a District say for example:

 

"We only allow salary reductions to Fidelity or Vanguard, "

 

Then the District hires someone else to do the due diligence.

 

The expenses then would be low because the economy of scale is working to the advantage of the employees because Vanguard and Fidelity, for example, already have the infrastruture.

 

Fidelity and Vanguard, don't want to burdened with making sure that participants don't over contribute via the catch-up, for example, so the District would hire a third party to work that angle.

 

The result would be low, low expenses and a good plan.

 

What are the pitfalls of this idea?

 

 

 

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Pab,

 

1) The school board does have some fidiciuary responsibility. While not as much as under an ERISA plan they do have to show some care in allowing investment choices under their control,ie.. who they allow payroll deductions to go to.

 

2) If a school board artifically controls selection choices they can be held liable for investment results. Now a school board can control investment options through contract bargining ie, in the contract it can say there must be "" number of employees that want a particular investment option before it is offered through payroll deductions.

 

3) There is no real differance between a 403b and a 403b(7) account. The only real differance is the 403b account must be held by an insurance company and the 403b(7) account must be held by a broker dealer or mutual fund family.

 

4) Yes an employee may take the deduction for a 403b(7) account. Again there is no real differance between the 2, just the investment being made by the participant.

 

5) Ethics are in the eye of the beholder and one only has to look at teachers unions and who they sponsor for 403b accounts to answer that question.

 

Remember I am not an attorney and if you want a full legal opinion you need to retain an attorney that specializes in this area. A good one is Carol Calhoun.

 

Bill Mahoney

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Just to add to Bill's reply---the annuity choice is a product that consists of an 'investment' and 'insurance' while the mutual fund choice is just an 'investment'. Thus, the costs of maintaining the annuity are more expensive because of the insurance costs. These insurance costs are commonly about 100 basis points or 1 percent per year.

 

Peace and Hope,

Joel

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Thanks for the input to date regarding my post.

But...I'm still curious as to what the fiduciary responsibilities of the school dictrict are to its employees.

For example- who is in charge of making certain employees do not exceed their limits in 403b or 457 salary deductions? Is it the district or the vendor or whom? And why? Another example- who is responsible for administering and overseeing a QDRO in divorce or other property settlements?

Does anyone know of a model that was suggested by GADFLY in an earlier post having a third party administer 403b the school district when Vanguard or Fidelity (lacking sales people) might be the sole vendors?

Thanks.

PAB

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