403(b)

A 403(b) plan is a tax-deferred retirement plan available to employees of certain public and private nonprofit organizations qualified under Internal Revenue Code section 501(c)(3).

Eligible Employers
  • Public educational organizations. Includes primary and secondary schools, state colleges and universities and junior colleges.
  • Nonprofit organizations. Includes hospitals, religious organizations, charitable institutions and social welfare agencies.
ERISA Provision Generally, a 403(b) plan will be subject to ERISA if the plan sponsor:

  • contributes to the plan (matching or nonelective), or
  • makes discretionary determinations in administering the plan (See Department of Labor bulletin 2007-2 for more information.)

ERISA exemptions. Government-​sponsored plans such as public school systems and county hospitals are not subject to ERISA — even if the plan sponsor contributes to the plan. Church-​sponsored plans are also exempt unless the plan specifically elects to be covered.

ERISA requirements. ERISA plans must file an annual Form 5500 and are subject to Title I disclosure requirements such as providing a summary plan description and summary annual report to employees.

Beginning with the 2009 plan year, ERISA plans with more than 100 participants must also have an annual independent audit of the plan’s financial statements.
Plan Documents Written plan. Effective December 31, 2009, all 403(b) plans (with a limited exception for certain church plans) must have a written plan. This requirement can be met with:

  • a single document or by
  • assembling together all of the plan’s contracts, custodial agreements, vendor service agreements and applicable state and local statutes or other governing documents

Plan sponsors should determine written plan requirements with their legal/tax adviser.

Information sharing. To ensure compliance with certain IRS rules for 403(b) plans (e.g. contribution, distribution and loan limits), plan sponsors and their vendor(s) must “agree” to share information about participant accounts. Information sharing provisions may be:

  • included as part of a vendor agreement or
  • addressed in a stand-alone information sharing agreement
Required Testing
  • ACP: Yes (ERISA plans only)
  • 415: Yes
Safe Harbor Provision ERISA plans can automatically satisfy ACP testing by following safe harbor guidelines, such as:

  • making predetermined mandatory contributions
  • providing 100% immediate vesting on safe harbor contributions
  • restricting distribution options for safe harbor contributions
  • providing annual notice to eligible employees regarding enrollment, deferral, distribution and vesting requirements
Eligible Employees Universal eligibility. After the first employee is permitted to participate, all employees who are willing to contribute at least $200 a year to the plan must be allowed to participate.
Participant Contributions
  • Annual. Participants can contribute up to $16,500 to their traditional and/or Roth 403(b) account(s) in 2010.
  • Age-50 catch-up. Participants who are at least age 50 by the end of the calendar year can contribute an additional $5,500 to their account(s) for 2010.
  • 15-year catch-up. Participants who have worked 15 or more years for the same organization may be able to contribute an additional $3,000 per year to their account(s) up to a lifetime maximum of $15,000.
  • IRS ordering rule. Participants who qualify for the 15-year catch-up contribution and the age-50 catch-up contribution must use the 15-year catch-up contribution first.
Maximum Account Allocation
  • Maximum participant account allocation (sponsor plus participant contributions) is 100% of participant’s total pay up to $49,000 for 2010.
  • Employer contributions are not required.

 

The above information is general in nature and is not intended as legal or tax advice. Along with our help, you should seek the advice of your tax consultant and/or attorney.