457(f) Plan - Where to invest

[austin3515]

I've had advisors end up having a really hard time figuring out where to "hold" the money ofr 457(f) plans, and in some cases 457b plans.

Anyone have any suggestions? These are usually 1 person plans for me, so the "platforms" are out. We're looking for brokerage accounts. Anyone have any ideas?

When opening just a regular brokerage account, are there any pitfalls/caveats? I'll take any advice.

[mbozek]

If you are thinking of 457 plans for non profits they are not subject to the fiduciary rules of ERISA and the investment account must be held in the name of the employer or other entity such as a rabbi trust which can be seized by the employer's creditors. The contributions can be invested through brokerage accounts, mutual funds, annuities, even LI.

[austin3515]

I know all of that, but try explaining it to the broker dealers who won't touch these things.

[QDROphile]

The account owner must be the organization. You must have assurances that the participant cannot provide instructions concerning payment. Most 457 arrangements allow the participant to direct investment, but that is a tricky combination: the particpant has authority to direct investment, but not the authority to direct disbursements. As awkward as it may be, the safer arrangement is to have the participant provide investment instructions to an authorized organization representative for execution; the particpant should have no authority whatsoever as far as the provider is concerned. If you keep it simple this way, it is just a brokerage account for the organization. No explanations needed for the provider.

[austin3515]

Well in a rabbi trust, it's registered to John Doe FBO the 457(f) Plan.

FYI, it sounds like Nationwide was able to do this, in case anyone else has trouble.

[QDROphile]

You are correct that using a grantor trust is different. The trust arrangement is made for nonqualified deferred compensation, so you should not have the same difficulties with understandings. I do not care for grantor trust arrangements because I think there is little value for the cost. Executives tend to want them becuase their counterparts with perceived large appendages have them.

[jpod]

I never heard the knee-jerk reaction to Rabbi Trusts described in quite that way, but I will definitely steal it and use it in the future. In many cases, however, particularly elective NQDCPs with many participants, a Rabbi Trust is a good thing to have as it eliminates the participants' angst over sticky fingers.

[austin3515]

So QDRO, you'r saying just tell the custodian, "hey we're setting up a grantor trust account" without getting into the gruesome details? I agree why should they care what the funds will be used for.

[QDROphile]

No, I am saying that if the provider has a rabbit trust product, a lot of things will fall in place without the confusion that you described in your original post. If the trust provider is independent of the investment provider (not common), then it might be possible to avoid the confusion simply by opening the account in the name of the trust; the investment provider need be none the wiser. You still need to be careful to assure that the participant does not have authority to withdraw funds.

[austin3515]

Can you give me the names of any providers that would include the rabbi-trust and would do a small 1/2 participant 457b? We've been doing our own rabbit trust because they always seem to end up in brokerage accounts.

Thanks for the advice, it's been very helpful!

[QDROphile]

I always manage to refer to rabbit trusts. I don't think I am either a leporidaphile or a rabbiphobe. I regret that I have no referrals. I have never been part of or party to such a quest.