Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
The Employee Retirement Income Security Act (ERISA) generally requires that all of the assets of an employee benefit plan be held in trust by one or more trustees. But, there are certain exceptions to this rule that cover 403(b) arrangements.
The trust requirement does not apply to assets of a plan that consist of insurance contracts (including annuity contracts) nor does it apply to assets held in one or more custodial accounts pursuant to section 403(b)(7) of the Internal Revenue Code. See ERISA Sections 403(b)(1) and 403(b)(5).
Of course, not all 403(b) arrangements are subject to ERISA but all of them need to meet the requirements of Code section 403(b). In that regard, Code section 403(b)(1) generally extends tax-favored treatment to annuity contracts (not trusts); Code section 403(b)(7) also provides that amounts contributed to certain custodial accounts (not trusts) that invest in mutual funds will receive the same tax-favored treatment.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to Rebecca.Moore@strategic-i.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.