Non-ERISA 403(b) Arrangement

[Christine Roberts]

Can an employer that maintains a non-ERISA 403(B) arrangement actually prohibit a certain annuity provider from having access to its employees? The employer was "burned" with this company before and is telling employees that they cannot maintain annuitys with the company.

[Guest CVCalhoun]

As far as I can make out, most employers limit their employees' selection of annuity providers. The only real limitation on this, in the case of an employer other than a church or governmental employer, is that the ERISA exemption under ERISA Reg. § 2510.3-2(f) can be lost unless the employer offers "a number and selection [of funding media] which is designed to afford employees a reasonable choice in light of all relevant circumstances."

On the other hand, the employer's prohibition may not be fully effective. Given the availability of nontaxable annuity exchanges under Code section 1035, an employee who wants to sign up with the prohibited company may be able to put the money with one of the permitted companies, and move it to the prohibited company immediately thereafter.

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Employee benefits legal resource site

[Kathy]

It is my experience that many school systems limit the number of providers in order to reduce their administrative burden, which seems to be ok unless they are unduly restrictive.

The problem with putting your money with one carrier and then transferring (we usually use 90-24 for transfers within 403(B)s) is that so many of the older programs use only annuities and not custodial accounts with mutual funds. The issue then becomes the enormous cost to get out of the particular insurance product - they usually have steep deferred sales charges for a while. So many programs I have seen only offer horrible fixed products so the return is low but the cost to change is too high.

[Ellie Lowder]

Public School systems are exempt from Title I of ERISA, hence the "reasonable choice" requirement under the DOL regulation does not apply to them. More and more public school employers are limiting service providers to those who will provide certain compliance support (in this "era" of IRS audit activity) and sign Hold Harmless/Service Provider agreements. Incidentally, "beauty is in the eye of the beholder". Annuities for 403(B) plans are not "horrible". Based on current annual flows into 403(B) plans, and assets held in those plans, annuities are favored as options.

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[Guest TYounkin]

I would argue that to the educated investor annuities are not favored as retirement plans. Scott Burns writes at http://www.jsonline.com/business/burns/981...with403bpla.asp

• The current inflows of cash into retirement plans wrapped in annuities is a result of lack of education and a limited selection of retirement vendors selected by the employer. Many employees are hesitate in approaching their boss to have their retirement plan changed for fear of being scapegoated.

Lots more articles can be found below at my links page. I have yet to find any articles (non-promotional) supporting annuities to be used as retirement plans. In all fairness if you find any then let me know so I can add them to my links page.

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http://www.geocities.com/CapitolHill/Congr...2077/links.html

[Note: This message has been edited by CVCalhoun]