Is it permissible for the custodian of a commingled Non-Tile I 403(b)(

[Guest EWagner]

Assume a Non-Title I 403(B) with a commingled 403(B)(7) custodial account. Is it permissible to perform the participant level accounting on a traditional recordkeeping system not controlled by the custodian? The custodian would have to accept transaction, asset and distribution information as delivered by a TPA's recordkeeping system, and perhaps sign off on statements, but have no in-house record of participant data.

[Guest EWagner]

Anybody?

[Carol V. Calhoun]

I'm afraid the reason that you are not getting responses is that there really is no law on this one. Also, the penalties for problems with a 403(B)(7) typically fall directly on the employer or the employees, not the custodian. Thus, whether the custodian had liability might depend in large part on the specific facts and circumstances as to what its contracts were with the employer and/or employees, and whether any argument could be made that it had agreed to indemnify them.

[Guest RJT]

The obligations of the 403(B)(7) custodian will be determined by the terms of the custody agreement between the custodian/investment company and the 403(B) participant. Thus, even if the investment company arranged to have the funds place in a comingled account, the custody agreement would require that individual recordkeeping be kept and that the information be provided to the participant. Remember that the 403(B)(7)s are all reegistered securities, and the valuations and other money handling matters are strictly regulated.

So, the custodian will always have the obligation to the 403(B)(7) participant to keep track of those things that are provided for in the agreement. Any TPA arrangement would be between the custodian and the TPA, and subject to contract law. So, for example, if the custody agreement provides that the custodian will monitor and return 402(g) excesses, and fails to do so, and the taxpayyer suffers a loss, arguably there is a contract claim arising against the custodian and the custodian would have a similar one against the TPA.

Sometimes an employer will maintain a group custodial agreement, and may then also directly contract with a TPA for the provision of individual recordkeeping services. The problem with these types of arrangements is that they invariably become tangled up with Title 1 issues, and the problem then becomes that of the employer-as well as the custodian.

[Guest EWagner]

Thanks for the comments. My instinct was that commingled 403(B)(7) assets created undefined exposures for the Custodian and the TPA, and I guess that is the sustance of this thread. Sure would be nice, however, to run an unbundled shop trading plan level accounts with impunity... Save a bundle, too!