The final 403(b) regulations require that there be a written plan document in place before 2009. Our 403(b) document is available now — and will be available on the 401(k) Portal very soon. (Contact Martha Kirwin at 973-492-1880 for more information on the 403(b) document and its availability.)

New comprehensive §403(b) regulations have eliminated many of the distinctions between §403(b) rules and the rules that apply to other salary reduction arrangements, and generally apply for tax years beginning after December 31, 2008. 

To assist you in providing a §403(b) Plan document for your clients we have updated our §403(b) Plan document to comply with these final regulations.  Our document is extremely flexible and includes two employer matching contribution formulas as well as two non-elective contributions formulas.

Generally, taxpayers may rely on the final regulations after July 26, 2007, if the reliance is on a consistent and reasonable basis.   Transition rules apply to collective bargaining agreements, church conventions, plans excluding certain types of employees from elective deferrals, plans that allow for in-service distributions, life insurance contracts and contracts received in an exchange. 

We have compiled the top ten questions we have received with respect to §403(b) and the new regulations. Here is the first in this series of ten FAQs.

1.      WHO MAY SPONSOR A §403(b) PLAN?

Unlike a qualified plan, only certain types of organizations may sponsor a §403(b) plan.  These are public education employees and tax-exempt organizations.

Private §501(c)(3) Organizations
Employees of organizations that qualify for tax-exempt status under Code §501(c)(3) are eligible to participate in a §403(b) plan.  Code §501(c)(3) encompasses non-profit and non-political religious, charitable and other public interest oriented organizations.  A cooperative hospital service association described in §501(e) is treated as a charitable organization eligible to provide §403(b) plans to its employees.

Public Institutions other than Public Schools
Although public school employees are eligible as such for §403(b) plans, the eligibility of employees of public hospitals and other public institutions depends on whether the employer can qualify as a §501(c)(3) organization.  A public institution may be accorded tax-exempt status under §501(c)(3) only if the institution is an entity separate from the government, and if it does not have governmental powers such as enforcement or regulatory powers.  A public institution need not be incorporated to be considered a separate entity for this purpose, but it must be analogous to a private tax-exempt organization.  A public hospital and a public library may also qualify.  Contributions are excludible under §403(b) plans only if made by an employer for a present, former, or retired employee.  Determining whether an individual is an employee or is self-employed occasionally can be difficult, particularly in cases of physicians working in hospitals.  Issues in this area are resolved by applying criteria similar to those applied to determine employee status for income tax withholding, FUTA, and FICA purposes.