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Non-gov't / Private 457(b) Funding Options

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A tax-exempt, non-governmental 457(b) has a lot of options for investing assets. The terms of the plan must be followed, if anything specific is spelled out in the plan.

 

However, regardless of how the investing gets done, those assets are considered general employer assets - they cannot (by federal law) be protected under a trust. Thus, these funds are not protected from creditors, they're just company assets.

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The plan sponsor can adopt the Internal Revenue Service Model Rabbi Trust (see Rev. Proc. 92-64 as amended) to hold the assets of a Tax-Exempt Organization Eligible 457 Plan.

 

I think the plan sponsor cannot purchase life insurance contracts unless:

1) the Employer retains all ownership in the contracts,

2) the Employer is the sole beneficiary of the contracts, and

3) the Employer is not under any obligation to transfer the contracts or pass through the proceeds to any Participant or to his/her Beneficiary.

 

However, I'd like to see other panelist's comment on these two questions.

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