403(b)

[Guest TLCPension]

Is a Trustee required on a 403(b) Plan?

[mbozek]

No. There are no assets.

[ljr]

What do you mean no assets?

[mbozek]

The contributions are made to an annuity contract or custodial account that is owned by the participant. The assets are not held in a trust by a trustee for the benefit of participants.

[Guest TBick]

Do you maintain the same position if it is a plan subject to ERISA?

[mbozek]

Yes. See ERISA 403(b)(1) and (5).

[Belgarath]

Resurrecting this old post - just saw something I haven't seen before - Schwab, for a 403(b) plan, has the employer execute a Trust agreement wherein Schwab is named as the Trustee (a directed trustee) and the 403(b) custodial accountis within the Trust.

Very strange...

[QDROphile]

Nothing about section 403(b) prevents assets from being held in trust. A 403(b) plan enjoys exemptions from the usual ERISA trust requirements if the annuity contract or custodial account requirments are satisfied. For 401(a) plans funded through group anuity contracts it is not so unusual to have the contract held in a trust.

[Belgarath]

Yeah, but it just seems very odd - why go through the whole Trust thing if you don't have to? Oh well, presumably Schwab's legal department had a good reason for it. I've just never seen anyone else do it.

[mbozek]

Resurrecting this old post - just saw something I haven't seen before - Schwab, for a 403(b) plan, has the employer execute a Trust agreement wherein Schwab is named as the Trustee (a directed trustee) and the 403(b) custodial accountis within the Trust.

Very strange...

403b7 provides that amount paid to a custodial account which satisfies the requirements of 401f2 shall be treated as an annuity contract if the amount is invested in a mutual fund

401f2 provides that for the purpose of the IRC, a custodial account shall be treated as a trust if the assets are held by a bank or another person approved by the IRS.

Only difference between a trustee and directed trustee is that directed trustee does not exercise discretion and is not performing any fiduciary duties, i.e is a custodian.

Its possible that Schwab got the IRS to approve a trust Co that was established for other purposes, e.g., act as a trustee for personal assets of Schwab customers or even qualified plan assets to act as trustee/custodian for mutual funds held in a 403b plan.