457 Investments

[Guest Suanne]

Can the trustee or plan sponsor of a 457 government plan change the investment program of an existing 457 plan, currently invested in an insurance contract, as a tustee can in a qualified plan? Would this answer be the same if the current investments were in a trust?

[mbozek]

yes unless the employee has the right to designate the investment under the plan. See plan document for provisions relating to investment of plan assets.

[Kirk Maldonado]

mbozek:

Could it be possible that state law might limit the investment choices that could be offered under a Section 457 plan?

[mbozek]

It is always possible that state law may limit choices- or regs issued by a state agency for that matter. I assumed that the plan document would incorporate any reference to state law as a matter of good drafting.

[Guest Suanne]

mbozek:

Assuming the 457 government plan allows for participant investment direction, can the plan sponsor change the investment options available - for instance can the plan sponsor elect to transfer the assets from Nationwide to Fidelity -under both cases, the participant has the ability to direct their own investments. My concern is whether the plan sponsor of a 457 government plan has this capability (authority over the investment platform of the assets - even for plans that allow for participant investment direction) or is a 457 government plan like a 403(B) plan in which case the participant "owns" the contract.

Thank you for your help.

[mbozek]

Under IRC 457 the assets of the govt 457 plan are held for the exclusive benefits of the employee in a manner similar to assets held in a qualified plan trust. This rule applies even if the plan assets are held in an annuity contract without a trust. LI must be held in a trust. The assets must be held in the ERs name in order to avoid taxation to the employee. This indicates that the trustee can transfer assets from one policy to another provided that the plan has not waived such a right by permitting the employee to select investments. However you really need to review the plan document, trust (if any) and state law to determine what are the powers of the trustee/sponsor to change investments. The terms of the investment, e.g., LI policy may also contain restrictions on transfer without the employees consent or have a back end load. There are proposed regs on 457 plans that should be reviewed. 403(B) plans are different if the employee owns an individual annuity contract. However, an employees interest in a group annuity or a custodial account can be transferred to another provider without the ee's consent.