Skip to main content

4 Questions Plan Sponsors Should Ask to Understand the Similarities and Differences Between 401(k) and 403(b) Plans

1. Which employers can offer a 403(b) plan?

  • Public education organizations such as public elementary and high schools, state colleges and universities, and boards of education.
  • 501(c)(3) nonprofit organizations such as private schools, research facilities, private hospitals, charities, social welfare agencies, healthcare organizations, and religious institutions.
  • Grandfathered Indian tribal governments.
  • Certain religious ministers of a church or related religious organizations.

2. Which employers can offer a 401(k) plan?

Almost any type of company may offer a 401(k) plan. Most private, for-profit companies are eligible.  Many tax-exempt, non-profit organizations have a choice between sponsoring a 401(k), a 403(b), or both.

3. How are 401(k) and 403(b) plans similar?

  • Have the same 402(g) elective deferral contribution limits. For 2016, elective deferrals cannot exceed $18,000. 
  • Allow the additional catch-up contribution for employees over age 50. For 2016, the maximum catch-up contribution is $6,000. 
  • Allow Roth contributions. 
  • Allow both elective deferrals and employer contributions.
  • Require plan sponsor oversight. 
Before new 403(b) regulations were passed, plan sponsor oversight of 403(b)s was almost nonexistent. Generally, it was much easier for 403(b) plans to be exempt from the Employee Retirement Income Security Act (ERISA), as long as they did not include employer contributions. Since the final 403(b) regulations became effective in 2009, administrative responsibilities have been imposed on 403(b) sponsors and the two plan types have become more similar.

Click to learn more about the final 403(b) regulations or visit https://www.irs.gov/publications/p571/ch04.html.

4. How do 401(k) and 403(b) plans differ?



If you have any questions, or would like to begin talking to a retirement plan advisor about whether a 401(k) or 403(b) plan would be more advisable for your organization, please get in touch by calling (800) 388-1963 or e-mail us at hbs@hanys.org.
Labels:

Popular posts from this blog

SECURE 2.0 Discussion Series: Session One

SECURE 2.0 provisions: What we know and what’s still up in the air The SECURE 2.0 Act, signed into law in late December 2022, has factored heavily in retirement industry discourse since the final legislation was published. As with any legislation of this depth and breadth, there’s a lot to digest and the industry takes time to adjust. Our team of experienced advisors recently met to discuss some of the more nuanced provisions of the legislation, such as changes to Roth contributions, and what they could mean for plan sponsors. Panel participants included the following HBS team members: Noah Buck, Christina Bauer-Dobias, Sean Bayne, Vincent Bocchinfuso and Kathleen Coonan. Highlights of our panel’s conversation below should serve to help guide plan sponsor thinking. On Roth employer contributions NB – In addition to deferring pre-tax or Roth, plan sponsors can now allow employer contributions to be classified as Roth, is that right? VB – Correct. This is immediately available to plan s
Read more

COVID-19: Retirement and Benefit Plan Resources

As the COVID-19 crisis continues to unfold, we are closely monitoring news and updates from top sources. We’ll be updating this section as new developments unfold. Here are several key articles and links to help plan sponsors and administrators navigate the COVID-19 impact to retirement and benefit plans: Retirement Plans 4 Key CARES Act Provisions for Retirement Plan Sponsors Markets React to Coronavirus   Important Considerations for Retirement Plan Sponsors during the Coronavirus Pandemic In Fed We Trust Participant Education Services: Timely Help from a Safe Distance CRDs 100% Taxable for New York State and Local Income Tax Purposes in 2020 IRS Permits Remote Notarization of Participant Elections   Employee Benefits CARES Act Expands Health Coverage Rules Understanding the Historic $2 Trillion Stimulus Package Employee Compensation and Benefits During Closures and Furloughs DOL Clarifies Exemptions to Coronavirus Paid Leave Laws Small Business Exemption to
Read more

SECURE 2.0 Discussion Series: Session Two

The retirement industry has been buzzing since the SECURE 2.0 Act was signed into law last December. This new, comprehensive legislation has sparked a lot of discussion. As with any major reform, it will take time for the industry to fully adapt and understand all its implications. Following our April 11 webinar on the first three months of the industry’s response, our team reconvened to discuss some of what we have heard from our client and vendor partners and to respond to some of the great questions we heard from attendees. Panel participants included the following HBS team members: Noah Buck, Christina Bauer-Dobias, Sean Bayne, Vincent Bocchinfuso and Kathleen Coonan. The Discussion SB – Throughout the webinar, I wanted to stress two things: 1) confusion about where to start and what is expected from plan sponsors is normal; and 2) even more than three months in, this is a developing situation and people should expect changes as time goes on. With those in mind, engagement through
Read more