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Trustee Requirement


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Treas. Reg. §1.401)f)-1© states that "Any custodial account or annuity contract which satisfies the requirements of paragraph (b) of this section is treated as a qualified trust for all purposes of the Internal Revenue Code of 1954. Such a custodial account or annuity contract is treated as a separate legal person which is exempt from the income tax under section 501(a). In addition, the person holding the assets of such account or holding such contract is treated as the trustee thereof."

It would appear based on this regulation that a governmental 401(a) plan administered under a group annuity contract or custodial arrangement satisfies the trust requirement and no designated trust is required.

Would you agree?

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You are correct. A fully insured plan (private or governmental) need not have a trust. The only concern would be to make sure that the group annuity contract or custodial arrangement meets any fiduciary requirements imposed by state law or Internal Revenue Code section 401(a)(2) or 503. For example, who would be responsible for moving money from the contract to a different one if the issuer were in such financial trouble that there was a risk of it not paying benefits under the contract?

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