Reg. § 1.403(b)-8 Funding.
(a) Investments Section and only apply to amounts held in an annuity contract (as defined in ), including a custodial account that is treated as an annuity contract under of this section, or a retirement income account that is treated as an annuity contract under .
(b) Contributions to the plan Contributions to a section plan must be transferred to the insurance company issuing the annuity contract (or the entity holding assets of any custodial or retirement income account that is treated as an annuity contract) within a period that is not longer than is reasonable for the proper administration of the plan. For purposes of this requirement, the plan may provide for section elective deferrals for a participant under the plan to be transferred to the annuity contract within a specified period after the date the amounts would otherwise have been paid to the participant. For example, the plan could provide for section elective deferrals under the plan to be contributed within 15 business days following the month in which these amounts would otherwise have been paid to the participant.
(c) Annuity contracts
(1) Generally As defined in , and except as otherwise permitted under this section, an annuity contract means a contract that is issued by an insurance company qualified to issue annuities in a State and that includes payment in the form of an annuity. This sets forth additional rules regarding annuity contracts.
(2) Certain insurance contracts Neither a life insurance contract, as defined in section , an endowment contract, a health or accident insurance contract, nor a property, casualty, or liability insurance contract meets the definition of an annuity contract. See . If a contract issued by an insurance company qualified to issue annuities in a State provides death benefits as part of the contract, then that coverage is permitted, assuming that those death benefits do not cause the contract to fail to satisfy any requirement applicable to section contracts, for example, assuming that those benefits satisfy the incidental benefit requirement of , as required by .
(3) Special rule for certain contracts This applies in the case of a contract issued under a State section plan established on or before May 17, 1982, or for an employee who becomes covered for the first time under the plan after May 17, 1982, unless the Commissioner had before that date issued any written communication (either to the employer or financial institution) to the effect that the arrangement under which the contract was issued did not meet the requirements of section . The requirement that the contract be issued by an insurance company qualified to issue annuities in a State does not apply to a contract described in the preceding sentence if one of the following two conditions is satisfied and that condition has been satisfied continuously since May 17, 1982—
(i) Benefits under the contract are provided from a separately funded retirement reserve that is subject to supervision of the State insurance department; or
(ii) Benefits under the contract are provided from a fund that is separate from the fund used to provide statutory benefits payable under a state retirement system and that is part of a State teachers retirement system (including a state university retirement system) to purchase benefits that are unrelated to the basic benefits provided under the retirement system, and the death benefit provided under the contract does not at any time exceed the larger of the reserve or the contribution made for the employee.
(d) Custodial accounts
(1) Treatment as a section 403(b) contract Under section , a custodial account is treated as an annuity contract for purposes of through , this section and through . See section for special rules regarding the tax treatment of custodial accounts and section for an excise tax that applies to excess contributions to a custodial account.
(2) Custodial account defined A custodial account means a plan, or a separate account under a plan, in which an amount attributable to section contributions (or amounts rolled over to a section contract, as described in ) is held by a bank or a person who satisfies the conditions in section , if—
(i) All of the amounts held in the account are invested in stock of a regulated investment company (as defined in section relating to mutual funds);
(ii) The requirements of (imposing restrictions on distributions with respect to a custodial account) are satisfied with respect to the amounts held in the account;
(iii) The assets held in the account cannot be used for, or diverted to, purposes other than for the exclusive benefit of plan participants or their beneficiaries (for which purpose, assets are treated as diverted to the employer if the employer borrows assets from the account); and
(iv) The account is not part of a retirement income account.
(3) Effect of definition The requirement in of this section is not satisfied if the account includes any assets other than stock of a regulated investment company.
(4) Treatment of custodial account A custodial account is treated as a section qualified plan solely for purposes of subchapter F of subtitle A and subtitle F of the Internal Revenue Code with respect to amounts received by it (and income from investment thereof). This treatment only applies to a custodial account that constitutes a section contract under through , this section and through or that would constitute a section contract under through , this section and through if the amounts held in the account were to satisfy the nonforfeitability requirement of .
(e) Retirement income accounts See for special rules under which a retirement income account for employees of a church-related organization is treated as a section contract for purposes of through , this section and through .
(f) Combining assets To the extent permitted by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see ), trust assets held under a custodial account and trust assets held under a retirement income account, as described in , may be invested in a group trust with trust assets held under a qualified plan or individual retirement plan. For this purpose, a trust includes a custodial account that is treated as a trust under section .
[T.D. 9340, 72 FR 41144, July 26, 2007]