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IRS Expands Group Trusts to Include Certain Tax-Sheltered Annuities

    Client Alerts
  • December 31, 2010

Qualified retirement plans and individual retirement accounts (IRAs) have been able to participate in group trusts for funding purposes for many years. More recently, eligible governmental plans under Code §457(b) and certain other governmental funds have been eligible to participate. Revenue Ruling 2011-1 (the "Ruling") allows participation by certain tax-sheltered annuity plans, including custodial accounts under Code §403(b)(7) and retirement income accounts under §403(b)(9), effective January 10, 2011, as well as by commingled trusts maintained by the Pension Benefit Guaranty Corporation for terminated defined benefit plans and, temporarily, certain Puerto Rican plans.

A group trust allows pooled investments by eligible retirement plans with separate accounting for the assets attributable to each participating plan. Allowing participation by certain §403(b) plans effectively expands the investment opportunities available to such plans. However, since §403(b)(7) custodial accounts are permitted to invest only in mutual fund shares, a group trust for such plans must adhere to the same limits, and therefore such a group trust effectively may be limited to §403(b) plans.

The Ruling provides model amendments that may be used to amend group trusts so that they can accept contributions from the newly authorized categories of retirement plan. Sponsors of §403(b) plans may be approached in the next few months about whether they desire to expand investment opportunities by participating in such trusts.