403(b) Plan Key Terms

Know how to talk the talk with these special 403(b) plan key terms

The 403(b) plan, sometimes called a tax-deferred annuity (TDA) or a tax-sheltered annuity (TSA), is very similar to the better-known 401(k) retirement investment plan. It is designed to allow certain employees of public schools, tax-exempt organizations and ministers to save for retirement through tax-deferred salary contributions. It's a good idea to familiarize yourself with the terms that follow so you'll be "in the know" on the topic, whether as an employee planning for retirement or an employer seeking a worthwhile plan for your employees.

Universal availability

The universal availability rule, enacted by the IRS, states that employers who allow one employee to participate in the 403(b) plan must extend the same offer to all of its eligible employees.

90-24 transfer

It used to be that 403(b) plan participants who weren't happy with their employer's provider or vendor list could perform a 90-24 transfer to the vendor of their choice-as long as the employer and its existing vendor gave the go-ahead. However, the IRS announced the end to such transfers, effective January 1, 2009.
IRS website.

Written plan

Unlike other plans, 403(b) plans to date have not been required to be documented in writing by the employer. However, effective December 31, 2009, 403(b) plan sponsors must have a written document containing all material terms of the plan arrangement, including eligibility for participation, the types of contributions permitted and other pertinent information.

Elective deferrals

403(b) plan contributions are typically made via elective deferrals. Participating employees sign an agreement giving permission to put a specified amount of each paycheck into the 403(b) plan.

Maximum amount contributable

The maximum amount contributable (MAC), formerly called the exclusion allowance, is the maximum amount of money that can be put into an individual's 403(b) plan each year. The IRS has formulas that help compute an individual's MAC.

Vendor list

Employers who offer the 403(b) plan should compile a vendor list so their employee participants can select which investment companies they want to manage their 403(b) contributions.

Copyright © 2013 Business.com, Inc. All Rights Reserved.

---