Individual 403(b) plan anyone?

[Guest Mr. Relaxation]

I must sincerely apologize in advance for what is undoubtedly a question beyond the acceptable thresholds this forum holds for even the most simple of questions. An investment friend asked me the following questions (thats it, blame it on someone else!!!) and, I'm just doing some of the digging to point himself, as well as myself, in the right direction.

With that said, here goes: He has an employee who works for a city public school system, which offers a 403(b) plan. His question boils down to whether this individual can opt out the school's 403(b) plan, and choose to start his own, personal 403(b) plan, making contributions to it, rather than to the school's plan? Obviously, this employee would bring his rather sizable account and annual contributions to this investment friend of mine, hence his interest in this being allowable.

The answer has to be no, correct? If this were an individual looking to opt out of a private companies 401(k) plan, he couldn't simply opt out of his employer's 401(k) plan, create his own 401(k) plan, and start making contributions, could he? (assume he is not in business for himself or anything like that)?

[QDROphile]

If the employer has any sense, the employer would refuse to do business with the scoundrel salesman and his companies, so no money would go into the individual plan (the employer has control over where it sends the money). Then the salesman might be able to start a stink among enough employees so that they start agitating for the superior products to replace or supplement what they have now. The employer may be bound by contract not to allow other companies into the realm, and other threads have discussed some of those arrangmenents, and some are based on some legitimate economic concerns.

Some arrangements are wide open and allow any individual to be conned by any salesperson that they fall prey to. The employer just sends the money to the insurance company or mutual fund as instructed. Some are closed at the front end, but allow a participant to transfer from one annuity provider to another after the contributions are made to the provider who has the relationship with the employer.

[david rigby]

Always amusing when an individual wants to do business with a "friend", often resulting in higher administrative costs than the economy of scale available to the Plan.

[Just Me]

The friend of your friend may very well be able to make this switch of annuity vendors. The difference between a governmental 403(b) and a corporate 401(k) is that the 401(k) is clearly an employer-sponsored plan where the employer sets the investment parameters, whereas, a government 403(b) arrangement is generally between the employee and annuity vendors, with the salary deductions and payment to vendors merely facilitated by the employer. Some states prohibit public educational employers from limiting the allowable vendors so the scenario you presented happens all the time.

[GBurns]

Usually the 403(b) in a public school is only facilitated by the school district so it is not the school's plan, it is the employee's plan. As a result the employee if free to stop and start (within the limits set) any plan as they wish provided that the new plan is one of those "approved" for use by that particular employer. In many cases the "approval" only means that the provider has a salary deduction slot on the payroll system.

However, as pointed out by other posters, buying from a friend (or friend of a friend etc) or in the scenario that you have pointed out might not be a good thing to do.

[Guest Mr. Relaxation]

Thanks to all for responding. I am very much in the dark about 403(b) plans (and will happily stay that way!!!) and am very surprised that, if the school system allows for it, that individuals can have their own individual plans. I spoke with investment guy after posting and was told that this particular school system does allow employees to go anywhere with their 403(b) contributions. Good for investment guy I suppose.

Thanks to all.