403(b) Plan

Although not as common as a 401(k) plan, 403(b) plans are becoming more and more popular with employees of public school districts, tax exempt organizations and certain churches. With the enactment of new regulations over the last few years by the Internal Revenue Service (IRS), employers offering 403(b) plans have been required to comply with more formal procedures than in the prior years.

What is a 403(b) Plan?

A 403(b) plan is similar to many other retirement plans in many aspects but the tax exempt status of the employer allows some additional provisions in these plans that are not available to the private sector. A 403(b) can either be an ERISA 403(b) plan or a non-ERISA 403(b) plan. The type of 403(b) plan dictates the amount of complexity in the plan and the level of involvement by the employer.

An ERISA 403(b) plan is subject to Title I of ERISA which is regulated by the Department of Labor (DOL). An ERISA 403(b) plan requires the employer to establish a written plan document, maintain records of the plan investments and file an annual Form 5500 with the Department of Labor. These plans typically custody the plan assets with one financial institution and provide a single financial advisor for the employees.

A non-ERISA 403(b) plan is not subject to Title I of ERISA and not subject to many of the regulations mandated by the DOL. A non-ERISA 403(b) plan is required to have a plan document but it can be as informal as a collection of the multiple vendor contracts procured by the employer. The plan allows the employees to select their own financial institution and financial advisor which typically results in multiple accounts established with many different vendors. Although these provisions limits the amount of oversight by the employer, it does however provide significant administrative burdens to the human resource and payroll departments in order to process the employees’ contributions each payroll period.

How much can I contribute to a 403(b) Plan?

An employee can contribute up to $16,500 (indexed) into a 403(b) plan each year. For employees age 50 and older, an additional $5,500 (indexed) can be contributed as a catch-up contribution each year. In addition, an employee with 15 years of service or greater has the option of making additional contributions to the plan above and beyond the annual deferral and catch-up contribution. An employee wanting to exercise the 15 years of service or greater provision should contact the plan administrator to determine his/her contribution options.

The employer has the option of making a contribution to the plan but it is at the discretion of the employer. These contributions can be a matching or a nonelective contribution to the plan. The provisions indicating employer contributions allowed by the plan and the manner in which they will be allocated will be detailed in the plan document.

Is the Employer required to contribute to a 403(b) plan?

The employer is not required to contribute to a 403(b) plan. Any contributions to the plan on behalf of the employer are strictly discretionary and can vary each year.

How does an employee receive their money from a 403(b) plan?

To take a distribution from a 403(b) plan with salary reduction contributions, the employee must experience a qualifying event. The qualifying events for distribution are 1) attainment of age 59 ½ , 2) severance from service with the employer sponsoring the plan, 3) death or disability, 4) a qualified domestic relations order, 5) a qualified hardship withdrawal, 6) corrective distributions as permitted by the Internal Revenue Code, 7) an IRS levy, or 8) a plan termination.

What is required to administer a 403(b) Plan?

The type of 403(b) plan your organization adopts dictates the requirements for administration. An ERISA 403(b) plan typically hires a third party administrator to assist with the plan document, the plan reporting and the annual testing and administration. However, a non-ERISA 403(b) plan will typically administer the plan internally with existing staff.

What are the first steps to getting a 403(b) plan started?

If you are interested in exploring a 403(b) plan for your company, please contact Resource Benefits Administrators at (254) 776-6214 or (512) 342-1652 and a representative will assist you with your questions and the procedures needed to get your plan established.

3415 Greystone Drive, Suite 205
Austin, Texas 78731
(512) 342-1652
5400 Bosque Blvd, Suite 500
Waco, Texas 76710
(254) 776-6214

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