Yes, tax-exempt businesses, such as non-profit organizations (so long as properly formed in accordance with section 501(c)(3) of the Internal Revenue Code), religious institutions, and schools can give their employees the benefit of a tax-deferred workplace retirement plan. These plans, called 403(b) plans, operate like a 401(k) plan, but with some key differences.
First, the similarities. Just like a 401(k) plan, participating employees in a 403(b) plan can defer a portion of their compensation to their plan on a pre-tax and/or post-tax basis up to an annual limit set by the IRS. All earnings are tax-deferred and benefits are portable to another qualified plan or an IRA. 403(b) plans may allow participants to take out loans or hardship distributions from their accounts.
There are some important differences that employers should consider when deciding whether to offer a 403(b) plan because they may impact the cost and administrative burden to you.
- Eligibility - All employees are immediately eligible to participate. Your ability to exclude groups of employees is more limited as compared to a 401(k) plan.
- Investments - 403(b) plans can only offer annuities, mutual funds, or Exchange Traded Funds with a money market fund for short-term holdings awaiting investment.
- Catch-Up Contributions - Participants age 50 or older with 15 years or more of service can make an extra contribution.
- Streamlined Compliance Testing - These plans are not required to undergo all of the annual required nondiscrimination tests.
A member of our Sales Team would be happy to help you determine if a 403(b) plan is a good fit for your organization. Please contact us at firstname.lastname@example.org