403(b) Plans and 457(b)s
(Non-governmental) (ERISA & Non-ERISA)
Comparatively speaking to a 401(k), a 403(b) plan shares many of the same characteristics, but is not subject to certain nondiscrimination testing and administrative procedures.
For-profit companies often offer 401(k) retirement plans for their employees; non-profit entities can offer 403(b) plans.
As wonderful as these plans are for employees, the past few years have seen many changes to the rules that govern 403(b) plans. The Ryding Company will help you wend your way through these changes, making sure your 403(b) plan is compliant. We also can design a plan for you.
A 403(b) plan – like its cousin the 401(k) – is a great way to help a non-profit’s employees save for their retirements. They contribute a portion of their gross salary to the plan, thus reducing their total taxable income in the present and deferring paying taxes on their contribution until they turn 59 ½ and/or retire (when most individuals’ tax burden should be lower).
Another benefit to non-profit employees offered a 403(b) retirement plan: vesting is almost immediate. Most 401(k) plans tend to have vesting requirements that are spread out over a few years, but 403(b) plans tend to vest immediately or have a shorter time frame than 401(k) plans.
457(b) Retirement Plans
Help Employees Accrue Additional Retirement Savings Quickly
A Section 457(b) plan is a non-qualified deferred compensation plan similar to a 403(b) plan, although it is more common among state and local public employers and certain types of non-profit entities, such as 501(c) entities, charities, hospitals, unions, labor, chambers of commerce, or agricultural groups. A 457(b) plan benefits your employees because even if you already offer a 403(b) plan, your workers can also contribute to a 457(b) plan up to the maximum amount in each.
In addition, there is a special Section 457 catch-up limit which may be added to the plan document. This may allow participants who are within three years of their plans normal retirement age to contribute the lesser of 1) the basic annual limit (which may cause maximum deferral limit to be two times the annual limit) or 2) the allowable contribution or the underutilized limit from prior years. However, workers over 50 have to choose between the normal catch—up or the three-year cap.
As for 457(b) plans, there currently are no annual reporting requirements.
Whether you’re looking to set up a 403(b), a 457(b) plan, or both for your public or non-profit entity’s employees, we can help design and set these plans up for you. We also offer ongoing consulting services, should you have questions or need additional services.
Offering 457(b) plans, as well as 403(b) plans, can help those employees who have started saving for retirement a bit late catching up quickly in a very big way.
WHO is an Ideal Plan Sponsor?
- Goal: Organizations looking to provide a retirement plan benefit to attract and retain employees with comparable benefits to a 401(k).
- Demographic: Nonprofit companies, religious groups, school districts, hospitals, and governmental organizations of any size.
- Generosity: For ERISA 403(b) plans, an employer contribution is discretionary. Allocation options are similar to a traditional profit sharing plan and can include:
- Pro-Rata: The same percentage of annual income or fixed dollar amount.
- Safe Harbor:A Matching Contribution of up to 4%, or a Nonelective Contribution of 3% to all eligible employees.
- A plan exercising an employer contribution is subject to ACP non-discrimination testing unless it is a governmental or church plan.
WHY a 403(b)
- Contribution maximums to a 403(b) are identical to a 401(k), with the additional option for individuals having 15 years of service to an employer to add an additional $3k to their annual contribution limit. For an individual over age 50, this would be a deferral of $27,500 in 2018.
- Non-ERISA 403(b) plans are not subject to ADP, ACP, and 401(a)(4) coverage tests.
- Eligibility under the Universal Availability Rule requires that the option to defer into the plan must be offered to all eligible employees except:
- Certain student employees and
- Employees who work less than 20 hours per week and are expected to work less than 1,000 hours per year.