Plan Document, Annuity, and Custodial Account Basics

Question 1

Prior to revenue Procedure 2007-71 most providers did not capture employer information, such as severance dates of employees, for their 403(b) accounts
True
False

Answer 1

True
There were no plan rules governing accounts held in non-ERISA plans, and some providers simply did not have the system capability of capturing that information

Question 2

Exchange Traded Funds are not allowed to be used in 403(b) plans for non-profit or governmental employers
True
False

Answer 2

True
ETFs are not permissible investments in custodial or annuity 403(b) plans. They are permitted in 403(b) plans sponsored by churches who use retirement income accounts

Question 3

Designated Roth contributions must be permitted in 403(b) plans
True
False

Answer 3

False
Designated Roth contributions are an option than an employer may or may not allow for. If the employer allows designated Roth contributions, then the provision must be included in the written plan document.

Question 4

Which of the following provisions is required to be included in every 403(b) plan document?
a. distribution options
b. amount of life insurance that can be purchased
c. loan provisions
d. employer matching contributions

Answer 4

distribution options
Distribution options are required to be included in every 403(b) plan. The other provisions are optional

Question 5

A financial advisor would typically be listed in a Hold Harmless Agreement
True
False

Answer 5

False
The Hold Harmless Agreement would be entered into by the Registered investment Company or Insurance Company, not the individual financial advisor

Question 6

Prior to 1/1/2009 there was no clear guidance on appropriate procedures for terminating a 403(b) plan
True
False

Answer 6

True
In 2009, the IRS provided for the first time guidance regarding the termination of 403(b) plans that use annuities. The SECURE Act directed the Treasury to issue further guidance regarding the termination of certain custodial account 403(b) plans (and it issued guidance in 2020)

Question 7

Form 5500 must continue to be filed for a frozen ERISA 403(b) plan
True
False

Answer 7

True
Form 5500 must continue to be filed until the plan is terminated and all assets are distributed to plan participants

Question 8

When a 403(b) plan is frozen, participants can take a distribution from the plan immediately
True
False

Answer 8

False
Participants can receive distributions from the plan only when they have incurred a distributable event. Frozen plans are still considered ongoing plans an distributions can only be made from the plan in accordance with the written plan requirements

Question 9

An annuity contract may provide life insurance protection as long as the death benefit is merely incidental to the primary purpose of providing retirement benefits
True
False

Answer 9

True
Life insurance is permitted as long as the death benefit is incidental. In addition, the current value of the coverage is treated as a distribution to the participant (i.e. taxed if paid with pre-tax amounts)