(a) A plan established by the board or a local employer shall require:

1. (1) that its assets be invested by one or more financial organizations selected by the board or deferred compensation committee, as applicable; and
2. (2) that, by January 1, 1999 or such other later date as may be permitted under section 457 of the Internal Revenue Code with respect to a plan in existence as of August 20, 1996 and immediately with respect to all other plans, all such assets shall be held in one or more trusts pursuant to one or more trust agreements.

(b) Each trustee designated by the board or deferred compensation committee must be authorized to act as a trustee under applicable law and shall be either a member of the board with respect to the State plan or a member of the relevant deferred compensation committee with respect to a model plan or other plan or a financial organization selected in accordance with the requirements of this Subtitle. A trust agreement between the board or deferred compensation committee and a trustee shall not meet the requirements of this subdivision unless it satisfies each of the following requirements:

1. (1) the trust established by such agreement meets all of the requirements applicable to trusts described in section 457(g) of the Internal Revenue Code;

2. (2) such agreement provides that the assets of the plan to which such trust relates:

   1. (i) are held in trust for the exclusive benefit of plan participants and their beneficiaries
   2. (ii) may be used only to pay plan benefits and defray reasonable expenses of administering the plan; and
   3. (iii) cannot revert to the State or local employer until all plan benefits have been paid to plan participants and beneficiaries in accordance with the terms of the plan;

3. (3) such agreement names the trustee and provides that, upon the trustee’s appointment as such, the trustee shall have exclusive authority and direction to manage and control the assets of the plan, except to the extent that:

   1. (i) such management and control has been delegated in accordance with the terms of the trust agreement to one or more financial organizations appointed in accordance with this Subtitle;
   2. (ii) the trust agreement provides that such trustee shall manage and control the assets of the plan at the direction of the board or deferred compensation committee or at the direction of one or more financial organizations appointed by the board or deferred compensation committee for this purpose; or
   3. (iii) the assets of the plan are to be allocated among the investment options available under the plan in accordance with the investment directions of plan participants, which investment directions may be communicated to the trustee by an administrative service agency appointed by the board or deferred compensation committee for this purpose;
4. (4) to the extent that the trustee performs the duties under this Subtitle of an administrative service agency, such agreement meets all of the requirements under this Subtitle applicable to contracts with administrative service agencies;
5. (5) to the extent that the trustee performs the duties under this Subtitle of a financial organization, such agreement meets all of the requirements under this Subtitle applicable to contracts with financial organizations; and
6. (6) such agreement satisfies the other applicable requirements of this Subtitle and any other applicable law.