Waist deep in the administration of 403(b) plans, we have been thrown into a whirlpool of new regulations and reporting requirements that leaves your head spinning. As plan sponsors are realizing, collecting the data required for the new 403(b) reporting requirements may not be easy. Many are wondering - "Why not just turn my 403(b) into a 401(k)?" That's a very good question. Is there a difference anymore? To aid you in answering these questions, we have created a comparison chart outlining the differences between a 401(k) plan, a 403(b) plan, and a 403(b) (9) plan. For more information you may contact the New Business Department of Benefit Resources, Inc. at 916-922-3200, or visit our website at www.benefit resources.com. Overview Section 403(b) of the Internal Revenue Code governs retirement plans for employees of certain tax-exempt organization, public educational organizations, and churches. 403(b) regulations were finalized by the IRS on July 23, 2007. Most of the new regulations required compliance beginning in 2009. In general, the new regulations narrow the difference between 401(k) and 403(b) plans, making 403(b) plans much more like their 401(k) cousins. ERISA vs. non-erisa plans 403(b) plans without employer contributions, or those sponsored by governmental employers or churches will not automatically be subject to ERISA. This chart was prepared to help illustrate the differences between the various plans Eligible Employers All types of entities except State and Local governments Entities exempt from tax under 501(c)(3) Churches exempt from taxes under 501(a)
ERISA, Title 1 Compliance (fiduciary, reporting & disclosure provisions) Required Prior to 2009 Not required Beginning in 2009 Required for most organizations. Optional non-electing church plan exempt from ERISA but subject to state law Investment Options Assets held in trust for benefit of participants. May use services of investment manager. More flexibility for both sponsor and participants. Trust offers participants protection from creditors. Annuity contracts issued by an insurance company (403(b)(1)) Custodial accounts invested in mutual funds (403(b)(7)) Plan sponsor may select investment options available under the plan, but the document must provide for this. Participants may be forced to move their accounts to those investments. Certain insurance and endowment contracts are no longer allowed under the final regulations Fiduciary requirements apply Custodial and Contract Changes Timing of Contributions Plan assets may be transferred from one custodian to another upon written instruction. Employee notice may be required Employee deferrals as soon as practical but not later than the 10 th day of the month following the date it was withheld from employees pay. Employer contributions by the time corporate taxes are due, with extension. Prior to 2009 Custodian changes may be restricted by the contract holder. Final regulations Require employer involvement (Rev. Ruling 90-24) Employee deferrals as soon as practical; plan document may specify time period. Eligibility No later than age 21, 1 year of service. Universal availability rule all common-law employees allowed to Benefit Resources, Inc. Page 2 of 6 For more information contact us at 916-922-3200
Excluded classes: - Union employees - Non-resident aliens. Plan must satisfy minimum coverage testing. Automatic enrollment is available. make elective deferrals. Excluded classes (Employer contributions only): Employees eligible for another 403(b) plan of the employer, a 457(b) eligible governmental plan or a 401(k) plan Non-resident aliens Students Employees who normally work fewer than 20 hours per week (document may require clarifying language) Some employee classes could be excluded, but exclusion no longer permitted beginning in 2010: Union employees Employees who make a one-time election to participate in a governmental plan Visiting professors Employees affiliated with a religious order who have taken a vow of poverty. Contribution Limits Salary deferrals up to $16,500 in 2010. Participants age 50 or older may make Catch-up contributions. Roth deferrals are allowed. Employer contributions up to 25% of eligible compensation. Maximum additions total contributions Salary deferrals up to $16,500 in 2010. Participants age 50 or older may make Catch-up contributions. Roth deferrals are allowed. If same employer maintains another plan, 403(b) contributions are not included in 415(c) limits. Salary deferrals up to $16,500 in 2010. Participants age 50 or older may make Catch-up contributions. Roth deferrals are allowed. Special catch-up contributions are allowed. Catch-up contributions Classified first Benefit Resources, Inc. Page 3 of 6 For more information contact us at 916-922-3200
up to 100% of an employee s pay or $46,000 (plus catch-up contributions). Special catch-up contributions are allowed for employees with 15 years of service at a hospital, school, church, or health and welfare agency lesser of: - $3,000 - $15,000 minus special catch-ups made in prior years, or - $5,000 multiplied by years of service, minus total salary deferrals made in prior years. Catch-up contributions Classified first as Special Catch-ups until the employee reaches the annual limit, then ag Age 50 Catch-ups as Special Catch-ups until the employee reaches the annual limit, then ag Age 50 Catch-ups Discrimination Testing Salary deferrals, matching, and employee after-tax contributions subject to minimum coverage and nondiscrimination testing (ADP/ACP). Documents Written document is required Prototype documents available. IRS will issue opinion or determination Letters on 401(k) plans. Plan may be terminated. Summary Plan Description must be provided to plan participants. Employer contributions subject to minimum coverage and nondiscrimination testing (ACP). Prior to 2009 Written document was not required. Beginning in 2009 Written document is required Prototype documents will be available. IRS will not review documents, except through Private Letter Ruling process. Prior to 2007, plan termination was not feasible because accounts were held in individual participant accounts; plan termination required all participants attain age 59½, terminate, die, or Non-elective church plans are not subject to non-discrimination testing (ACP), or minimum coverage testing Benefit Resources, Inc. Page 4 of 6 For more information contact us at 916-922-3200
become disabled. 2007 update Plan termination is allowed Control Group Employers with common ownership may be required to be treated as single employer for compliance purposes. Employers with common directors or trustees may be required to be treated as single employer for compliance purposes. Benefits for Former Employees Generally not allowed Employer contributions allowed for up to five years following separation of service. Reporting Form 5500 and Summary Annual Report required each plan year. Audits required for plans with 100 or more participants. Distributions When a distributable event occurs: - Retirement - Termination of employment - Death - Disability - Hardship - Loans - Required minimum distributions - Rollover options Prior to 2009 Partial filing of form 5500 required if Employer contributions are included in plan assets. Summary Annual Report required each plan year. Beginning in 2009, full filing and Summary Annual report required each year. Audits required for plans with 100 or more participants. When a specific event occurs: - Attainment of age/years of service - Termination of employment - Death - Disability After-tax contributions may be withdrawn at any time Plan Termination Plan may be terminated at any time Prior to 2007 Not allowed Benefit Resources, Inc. Page 5 of 6 For more information contact us at 916-922-3200
Beginning in 2007 Allowed (triggers a distributable event) Fees: Plan Installation Plan Document $1,250 to $1,350 Plan Document $2,000 Fees: Annual Administration Based on employee count and plan design; see Fee Schedule for details Based on employee count and plan design; see Fee Schedule for details Benefit Resources, Inc. Page 6 of 6 For more information contact us at 916-922-3200