403(b) Issues

[Guest TitusracerX]

I am new to the 403(b) arena and have the opportunity to takeover a state economic development agency 403(b) plan. Looks pretty simple to me, no HCE's, complete a few items on the 5500 and you are done. They have a model plan document with custodial accounts and annuity contract provisions. The document is not investment provider specific.

I do have some questions on the funding arrangements. I know they are limited to annuities and mutual funds for limited reporting, but it is our desire to offer a couple options to participants for investing:

Option 1 would be a mutual fund platform with a single fund family. Is this required to be a 403(b) specific platform, or can we just utililize their 401(k) platform knowing that the plan is still a 403(b)?

Option 2 would be individual brokerage accounts limited to mutual fund universe and annuities. Again, does this have to be 403(b) specific? Also, can we restrict this option to participants that have over 5k and are 100% vested?

Thanks for some prompt input!!

[mbozek]

Since 403(b) plan requirements differ from a qualified plan the custodial account must reflect the peculiar requirements of IRC 403(b). A 401(k) plan has requirements that are not compatible with 403(b) requirements e,g., assets are held in a trust, not custodial account. I dont think the 401(k) trustee would accept responsibilities as the custoidan of a 403(b) plan. Also how can a state agency maintain a 401(k) plan unless it was adopted prior to june 86? If the plan is exempt from ERISA then you can restrict the investment options. How does a state economic development agency qualify as a tax exempt charity under IRC 501©(3) eligible for a 403(b) plan? Also state govt plans are not required to file 5500s.