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gr8lakes

457 Plan Docs.

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Ususally the vendor provides the plan document. Thus they tend to be written not to allow additional vendors. If the school had their own document drafted, then it would allow multiple vendors or is easily amended to do so.

 

An interesting question is if a district has multiple documents, how are conflicts between the plans resolved?

 

Mark Fischer, CFA

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Correct me if I'm wrong about this...I seem to recall that when our district was considering the adoption of a 457 plan, the big difference between a 403(b) and a 457 is that the district had a fiduciary responsibility with a 457. Hence there was a need for an RFP process, and I was even under the impression (as was the district) that the 457 was a "single provider" plan. Much like a 401(k), I wasn't aware that multiple providers were even an option. IF the 457 IS a single provider plan, is that the district's decision, or the financial provider's, or both?

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I know in the state of Ohio you are allowed 3 payroll slots for 457 plans..one of those being the state run plan..so there is room for other providers to step in.. the question is, does the school district adopt 3 different plan docs. or do they run off one set..

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gr8lakes,

 

My office is in Peninsula, Ohio, a small community between Akron and Cleveland.

 

If a 457 is offered in Ohio, the State plan must also be offered.

 

457 plans can invest in any asset a defined contribution plan can invest in. Mutual funds, stocks, bond, real estate etc. The plan document and the trust company determine which assets are available choices. To simplify the sales process and to create a monopoly, insurance companies offer 457 plans with plan documents included. Thus the school does not have to have a plan drafted, and the trade off is that only the insurance companies products are available funding options.

 

Technically, the 457 plan assets belong to the school until they are distributed. The assets should be recorded on the school's balance sheet along with an offsetting liability.

 

It is the school's decision if a plan is offered, what plan is offered and how many plans are offered. With the exception that in Ohio, if a plan is offered, the state's plan must also be offered.

 

Mark

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Mark: Your assertion that 457(b) assets belong to the employer until they are distributed is old law and was repealed by the SBJPA of 1996. Current law requires that the assets be held in a Trust. The law follows.

 

Joel

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Trust Requirements:

 

The SBJPA requires that all assets of a Section 457 plan maintained by a governmental employer be held in trust for the exclusive benefit of participants and their beneficiaries. The trust requirement is satisfied if the plan assets are held in insurance annuity contracts or custodial accounts that have been established for the exclusive benefit of participants and beneficiaries.

 

For plans existing on August 20, 1996, the trust requirement must be met by no later than January 1, 1999. For Section 457 plans established after that date, the trust requirements must be met immediately.

 

IRS Guidance

According to IRS Notice 98-8, the trust requirements are satisfied only if:

 

The trust agreement is established in writing,

 

The trust agreement constitutes a valid trust under state law, and

 

The terms of the trust must make it impossible, prior to the satisfaction of all liabilities with respect to plan participants and beneficiaries, for any part of the trust assets and income to be used for, or diverted to, purposes other than for the exclusive benefit of plan participants and their beneficiaries.

 

Notice 98-8 establishes a "timely deposit" requirement. That means that once a trust is established, contributions made by or on behalf of participants must be transferred to the trust within a reasonable period. The timely deposit requirement will be met if, for example, the plan requires that contributions be made within 15 business days after the month in which the deferrals would have otherwise been paid to the participant as regular compensation. (Although not in the statute, this requirement reflects an apparent IRS concern that plan sponsors deposit contributions promptly. It uses the same deadline established by the Department of Labor for 401(k) salaried contributions.)

 

Notice 98-8 clearly states that failure to meet the trust requirements will result in loss of tax "eligible" status.

 

Notice 98-8 specifies that custodial or annuity contracts used as an alternative to a trust must meet certain technical requirements. A custodial account must be held by a bank (including insured credit unions) as defined under IRC Section 408(n) or a non-bank entity approved by the IRS. An annuity contract must be issued by an insurance company and does not include life, health or accident, property, casualty, or liability insurance contracts. Custodial and annuity contracts for Section 457 plans must also be nontransferable and must contain the same exclusive benefit provisions as a Section 457 trust. A combination of a trust, custodial account and annuity contracts (all meeting the exclusive benefit requirements of Section 457), may be used.

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Joel,

 

My understanding is that the trust is owned by the school and is for the exclusive benefit of the employees. therefore it is technically a school asset and a corresponding offsetting liability. I could be wrong, but it doesn't really effect the practical issues of the plan.

 

The deadline of the 15th of the following month is a common misconception. For ERISA plans, deferrals must be transmitted as soon as it is administratively possible to do so. The DOL usually interprets this to mean at the same time federal tax deposits are made. The 15th of the following month is the absolute deadline, regardless of the administrative feasability. This is currently a issue with the DOL. 401k plans that mistaking go by the 15th of the following month rule, are required to make restorative contributions and pay fines.

 

As far as the IRS is concerned for Non-ERISA plans, there is no strict rule. I had a conversation with a IRS official about this very issue, and his position was that a month or two delay in transmitting funds was not a concern.

 

Mark

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My understanding is that the trust is owned by the school and is for the exclusive benefit of the employees. therefore it is technically a school asset and a corresponding offsetting liability. I could be wrong, but it doesn't really effect the practical issues of the plan.

+++++++++++++++++++++++++++++++++++++++++++

Prior to the SBJPA of 1996 the employer could legally use 457(b) invested assets anyway it saw fit because it was legally an asset of the employer. The 457(b) ee was simply a general creditor of his/her er. The Congress felt this was too much risk for the ees to assume. Thus the establishment of the Trust, which is the owner of the invested assets and may only be used as you properly say for the exclusive benefit of the 457(b) participants. Trust assets by definition are not assets of the er.

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