403(b)

[Guest Ralph Amadio]

A provider of administrative services has stated that a 403(B) plan sponsor's public school plan might be discriminatory because the Plan will not allow life insurance as an investment of the 403(B) plan

1. What are the plan sponsors rights in setting investment policy?

The plan sponsor's payroll system is not geared to handling incidental reporting of income, etc. and will be forced to incur substantial expense if required to include life insurance.

2. Has anyone seen this approach simply as a method to sell life insurance product previously?

[QDROphile]

Unless you have state law that addresses the subject (which is unlikely), tell the life insurance salesperson lurking somewhere behind this ridiculous proposition the same thing that Glinda the good witch said to the wicked witch: "Be gone. You have no power here."

[Ellie Lowder]

Ralph, while CA Insurance Code Section 770.3 currently provides that "the employee shall have the right to designate the licensed agent, broker, or company" for the purchase of tax-sheltered accounts under 403(B), an attorney general's opinion also gives the employer the right to require that providers sign a Hold Harmless/Service Provider Agreement. Many of the CA Districts specificially prohibit the inclusion of life insurance in 403(B) plans for many, many valid reasons, including the necessity of reporting PS-58 costs - and the concerns about compliance with the limitations for the life insurance. I have not heard of any difficulties for those districts who prohibit life insurance.

[mbozek]

I dont know about CA state laws but there is nothing in the IRS regs for 403(B) plans that require that LI be made available under a 403(B) plan. I think the LI agent is preying on the ignorance of School disctircts to sell the product. Why not ask him for the basis for such an opinion in writing with the appropriate citations ???

[joel]

Are the rules different for Erisa 403b plans?

[Guest Ralph Amadio]

I believe that Governmental Plans require substantially less in the area of regulation than ERISA plans, however, since my practice is primarily governmental, I will leave the answer to someone better qualified.

[mbozek]

Joel--the rules are the same for ERISA plans-- employers are not required to offer Life ins in any pension plan.

[Guest STLGiant]

The only rules with respect to insurance in ERISA plans is that IF insurance is purchased, it must be "incidentalb" and there are regs that help one mathematically deterimine this...

[mbozek]

The incidential death benefit rule is tax reg 1.403(B)-1©(3) which applies to both ERISA and non ERISA plans.