Unitization of 403(b) Portfolios

Q. Is it possible to put unitized portfolios in a 403(b)7?
 
A. A MarketBeat column in the NTSA Advisor addressed this topic. Specifically, go to Q&A 4 which reads as follows:

Q4. Holdings in model portfolios may be shown on a participant statement, or, these models may be “unitized” and reported on statements with a daily net asset value, similar to a mutual fund. What are the implications of unitization for 403(b) plans?

A4. This is where the SEC rules governing 403(b) and 401(k) plans seriously diverge. Unitizing a model portfolio in a 401(a) plan has been a regular practice for decades, even back to the “balance-forward” days of plan administration. This has been possible because of the securities laws exemptions for 401(a) plans. However, the “unitized” unit of a 403(b) model portfolio does not have the same exemptions. It may well be a security that needs to be registered. Unitizing is also likely one of those factors which would trigger the registration of the model portfolio as an investment company. If you are engaged in this practice, seek advice of your legal or compliance staff.

But note that there are some investment advisors who say they use a look-through rule and if the underlying shares are qualified, the portfolio would be qualified as well. There are some attorneys who indicate that theory is somewhat questionable. The best advice may be to check with your own legal counsel.