Is Your Nonprofit Meeting the 403(b) Requirements?
Posted on Wednesday, August 23, 2017 Share
Many nonprofit organizations offer retirement plans for their employees. For many years, 403(b) plans did not have as many requirements 401(k) plans. This is no longer the case, and there are several regulations that nonprofit organizations need to make sure that they are following related to their 403(b) plans.
A 403(b) plan is a defined contribution plan established under the Internal Revenue Code for employees of 501(c)(3) organizations and certain employees of public schools and ministers. Prior to 2007 403(b) plans did not have as many regulations as 401(k) plans; however, the Department of Labor issued new regulations on November 16, 2007 for 403(b) plans that are covered by ERISA (The Employee Retirement Income Security Act of 1974). ERISA is responsible for setting minimum standards for most retirement plans; however, some 403(b) plans may not be subject to ERISA regulatory compliance.* Plans that do not have employer contributions, have minimal administrative involvement by the plan administrator and employee participation is voluntary are not subject to ERISA. All three of these criteria must be met in order for the plan to avoid ERISA requirements.
If the plan is subject to ERISA, it must meet the following requirements.
- Must have a written plan document that includes
- Participant eligibility
- Benefits provided
- Contribution limites
- Available investment options
- Optional features such as loan ability, hardship withdrawals, fund transfers and rollovers
- Plans with 100 or more participants are required to file IRS Form 5500, Annual Return/Report of Employee Benefit Plan. In addition, they must file audited financial statements with the Form.
- Plans with less than 100 participants may be eligible to use an abbreviated form (IRS Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan) without audited financial statements.
- Information must be shared between the 403(b) sponsors and service providers concerning the participants’ employment status, loans, hardship distributions and other plan distributions.
- Deferral deposits must be put into the participant’s account as soon as they can reasonably be segregated from the general assets of the employer but no later than the 15th business day of the month following the month in which contributions are received or withheld by the employer.
- 403(b) plans must allow all employees to participate (with some exceptions, for example employees who normally work less than 20 hours per week).
*If you believe your organization’s 403(b) plan is not subject to ERISA, we strongly recommend that you contact an attorney well-versed in ERISA as opposed to making the assessment yourself.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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