Login Form
|
403(b)Plans A 403(b) plan (named for the Internal Revenue Code Section) is a tax-advantaged retirement savings plan available for employees of public education organizations, some non-profit employers (only Internal Revenue Code Section 501(c)(3) organizations), and self-employed ministers. A 403(b) plan is similar to a 401(k) plan especially after recent legislation. Under a 403(b) plan an employee can elect to defer amounts out of compensation into the plan. These amounts a pre-tax and are invested and allowed to accumulate on a tax-deferred basis. The funds are taxed when they are withdrawn from the plan. Beginning in 2006, 403(b), like 401(k) plans may also include designated Roth contributions, i.e., after-tax contributions, which, if certain requirements are met, will allow tax-free withdrawals. There are separate rules that apply to Roth contributions. Click here for more information. 403(b) Plans are not technically qualified plans under ERISA or the Internal Revenue Code. While they are different in some fundamental ways qualified and unqualified plans (such as 403(b) and 457 plans) appear almost the same to the participant and the options available may be very similar. Most 403(b) plans for public education employees are designed as voluntary savings arrangements and consist of employee salary reduction contributions (deferrals) only. In those cases where a 403(b) plan only allows for employee salary reduction contributions, the plan is not subject to ERISA as long as the employer involvement is minimal. However, it is becoming more difficult for employers to maintain 403(b) plans and not exceed the minimal involvement threshold that would allow the plan to be exempt from ERISA. In those 403(b) plans that do provide for employer funding, the employer contribution may be based on a percentage of the employee’s compensation or on a matching contribution basis, similar to many 401(k) plans. From a plan administration standpoint, 403(b) plans are fairly efficient but are becoming more difficult. While they do not have many of the same technical difficulties that 401(k) plans often do, such as discrimination testing since many are not subject to ERISA, there are still compliance issues to be concerned about. And, in those cases where the 403(b) plan is an ERISA plan (the employer makes contributions to employee accounts) there are additional restrictions and administrative issues applicable to those employer contributions that must be monitored and complied with. 403(b) plans that are subject to ERISA are also required to file the Form 5500 annual report. Salary-deferral contributions under Section 403(b) plans are not subject to complicated discrimination testing. Instead 403(b) plans are subject to universal availability which, in general, means all employees must be permitted to make salary-deferral contributions. 403(b) plans also have simpler and less costly annual reporting requirements on Internal Revenue Service (IRS) Form 5500, including not having the independent auditor requirement applicable to qualified plans with more than 100 plan participants. Under the final regulations to Section 403(b), effective beginning after 2008, 403(b) Plans must be pursuant to a written plan that includes all material provisions relating to eligibility, benefits, applicable limits, contracts under the plan, and the time and form by which benefits may be distributed. Please contact us if you want more information regarding 403(b) plans or the administrative support that we can provide. |
Search
Software
- This site best viewed with:
