Governmental 457(b) Plan Consolidate Vendors

The sponsor of a governmental 457(b) plan would like to reduce the number of investment vendors/providers from 5 to 3.  They would like to stop all new contributions going to 2 of the vendors, but allow participants to keep any existing assets invested with these 2 vendors.  Is there anything preventing them from taking this approach? 

Government 457(b) plans are subject to state law and possibly collective bargainig agreements, political concerns, and entitlement mentality.  The answer to your question requires familiarity with the applicable local concerns.  Even if you disclose the locality, the chances of getting an informed response are reduced, but you might get lucky. Then if you get a response that there are no legal impediments, you are going to have to decide if the response is reliable and ask if competent counsel is needed in any event.

Although many employee-benefits practitioners are accustomed to thinking primarily in terms of Federal law, governmental plans require one to think about State and local law.

A State's agency, instrumentality, or political subdivision (or an instrumentality of a political subdivision) has only the powers provided by State law, and often bears burdens and constraints provided by State law.

A county, city, township, or other local unit might have further constraints under local law.

Under some States' laws, a change to an employee-benefit plan might call for some degree of collective bargaining, negotiation, or at least communication with one more labor unions or other employee associations.

And open-meetings and other procedural laws might affect a decision or restrain a power.