403b Employer Requirements
For certain employers who want to provide retirement plans for their employees, the option is a 403b rather than the more common 401k. A 403b is the available retirement plan for public schools and 501c3 tax-exempt groups -- charitable, educational, literary, scientific and religious organizations, among others. Employers have various obligations in setting up and administering 403b plans.
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Setup
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A 403b plan must include a written program that sets forth the terms and conditions of the plan, according to provisions of the federal tax code. The plan must state who is eligible to participate in the plan, the rules for eligibility, limitations on contributions, the type of investments -- such as annuity contracts or mutual funds -- that comprise individual accounts in the plan, and rules for receiving distributions of benefits.
Eligibility
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Internal Revenue Service regulations require universal availability, meaning all employees must have the right to contribute to a 403b. The only exceptions are employees who participate in another retirement plan such as a 401k, non-resident aliens, employees who generally do not work 20 hours a week, and many students. Additionally, plans may require employees to contribute $200 annually to be eligible for participation.
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Contributions
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Only employers may actually make contributions to employees' 403b accounts. The method by which employees set aside money for their account is a salary-reduction agreement. Employers must receive employees' permission to withhold money from their wages or salary and invest it in their 403b accounts. Employees must read the 403b written prospectus and sign their approval to participate through a salary-reduction agreement.
Limits
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Many employers opt to contribute to employees' 403b accounts. Employers must establish the formula by which they match employees' contributions and include the formula in the written program. Employers may say they will match 50 percent of employees' contributions up to 6 percent of their annual wages or salaries, for example. Employers must be aware of contribution limits. In 2010 and 2011, the combination of employer matching contributions and employee wage deferrals to a 403b could not exceed $49,000 per year. The limit on employees' elective deferrals -- the amount of wages or salary employees set aside for their 403b accounts -- could not exceed $16,500. Elective deferral limits are higher for employees who have been with their employer for at least 15 years or are at least 50 years old.
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