403(b) Plans

Posted on Wednesday, December 04, 2013

Similar to 401(k) plans, 403(b) plans are defined contribution retirement plans.  The difference in names simply refers to the section of the Internal Revenue code that addresses each type of plan.   403(b) plans are only available to certain governmental and tax exempt organizations.  Individual accounts in a 403(b) plan can only consist of the following:

                An annuity contract provided through an insurance company,

                A custodial account invested in mutual funds, or

                A retirement account set up for church employees invested in either annuities or mutual funds.

Like other deferred contribution plans, 403(b) plans are funded through periodic contributions by employees and employers.  They are also subject to limitations similar to those of 401(k) plans; however, there are some unique aspects of 403(b) plans (subject to exceptions).

-  If a 403(b) plan allows for elective deferrals, that option must be available to all employees.

-  Employees with 15 + years of service may contribute up to an additional $3,000 per year, for a lifetime total of $15,000.

-  Employers may continue to contribute to a participant’s account for up to five years after employment ends.

-  The only types of investments permitted for 403(b) plans are insurance annuity contracts and mutual funds held in custodial accounts.

-  The Department of Labor allows 403(b) plan administrators to exclude, for purposes of ERISA’s (Employee Retirement Income Security Act of 1974) annual reporting requirement, certain pre-2009 annuity contracts and custodial accounts.

-  In addition to participant loans, 403(b) participants may borrow directly from the plan custodian.  These plan loans are issued directly from the custodian’s funds and not through the plan from a participant’s account.

Beginning with the 2009 plan year, the IRS announced that most 403(b) plans are subject to ERISA.  Governmental plans and certain church plans are not subject to ERISA.  ERISA sets uniform minimum standards to ensure employee benefit plans are established and maintained in a fair and financially sound manner.  There are numerous requirements that must be met, including provisions related to vesting, participation, responsibilities of plan fiduciaries, etc.  Also required is the filing of Form 5500, Annual Return/Report of Employee Benefit Plan, which may include audited financial statements.  The general rule is plans with over 100 eligible participants must submit audited financial statements with their Form 5500.  Those with less than 100 eligible participants are usually not required to have an audit performed. 

Is your organization helping your employees save for retirement with a 403(b) plan?

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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