403(b) plans are deferred compensation programs offered to employees of tax-exempt organizations or certain educational organizations. 403(b) plans operate similarly to 401(k) plans, with the same overall contribution and deduction limits and available provisions (such as loans and hardship distributions).
403(b) plans are currently enjoying their spotlight in the pension world, as the IRS recently issued new regulations governing this type of plan. Many of these new regulations seek to bring 403(b) plans closer in operation to 401(k) plans.
Characteristics of 403(b) plans
403(b) plans can be divided into two main categories: ERISA and non-ERISA.
ERISA 403(b) Plans
ERISA 403(b) plans are subject to the operational requirements outlined in Title I of the Code, including annual participant disclosures, abiding by fiduciary responsibility rules, and filing an annual Form 5500.
For employees in ERISA 403(b) plans, the Code offers better asset protection, as the deferrals are held in a trust protected from creditors. Oftentimes, employees in ERISA 403(b) plans receive some form of employer contributions on their behalf, either in the form of a match or a discretionary contribution (similar to a Profit Sharing contribution).
For employers, being subject to ERISA means the ability to have more control over investment providers and a better framework within which to operate the plan. Limiting investment providers may lead to more streamlined payroll processing procedures, leading to less time for day-to-day administration.
Non-ERISA 403(b) Plans
Non-ERISA 403(b) plans only allow for participant deferrals, and up until recently, did not have many guidelines for employers to follow. Typical non-ERISA 403(b) plans are invested with individual annuity contracts maintained by the employee, with minimal involvement and guidance from the employer.
In the past, non-ERISA 403(b) plans did not require the maintenance of a formal plan document. As of January 1, 2009, all 403(b) plans, both ERISA and non-ERISA, must have a plan document in place.
For more information on 403(b) plans, contact one of our Pension Consultants or complete our online Proposal Request Form. Your Pension Consultant can guide you to a plan that fits your idea of retirement.
403(b) Plan Executive Summary