Life Insurance in 457(b) Plan

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A 457(b) plan has an old vendor that no longer gets on-going contributions other than premiums for life insurance policies. When the plan left the old provider, investment in life insurance was no longer permitted, but participants who had invested in life insurance under the old provider could still keep this investment.

Does the plan document drafted by the new provider need to contain a life insurance provision? If no, should the prior plan document under the old provider have a life insurance provision or is the old provider's contract provisions acceptable.

Are there different rules for 457(b) governmental plans vs top hat plans?

This assumes that investment in life insurance under a 457(b) plan is permitted by state law.

Thank you.

Edited by DTH

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A top hat plan does not have "investments" as such; life insurance, etc. is used only to measure the amount payable from the employer's general assets. So long as the contractual requirements were complied with, there shouldn't be an issue. And I'm assuming that the employees who chose life insurance already know that they did, and that other employees already know that they can't.

I'd be a little more concerned about a governmental. They have a formal trust, and cover a broad range of rank and file employees. You'd have to look at state law regarding what disclosure obligations they have. But I'd be inclined to put something in the plan at least saying, "Effective [date], no further investment in life insurance is permitted."

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