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.
Try: The universal availability rule has exceptions and exclusions that require employers to be extra careful with administration and compliance, as outlined by Lincoln Investment Planning.

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.
Try: Changes to and rulings on the 90-24 transfer are discussed in-depth on the 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.
Try: A document at Littler outlines the new written plan rules and details exactly what terms and conditions the written plan must cover.

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.
Try: Take a look at the 403(b) contribution calculator at Fidelity Investments, which explains the whats and whys of elective deferrals, and much more.

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.
Try: National Benefit Services further explains the maximum amount contributable and also explains "catch up" contributions.

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.
Try: Check out the guide to selecting 403(b) plan vendors on 403bwise.com. The two-page guide, issued by The Spark Institute, is designed to facilitate and simplify the vendor selection process.

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