|
403(b) Plans:
Eligibility Requirements
Who May Establish a
403(b) Plan?
A
403(b) plan can be established by any of the following organizations:
- A tax-exempt organization established under section 501(c)(3) of the
Internal Revenue Code. These organizations (see note below) are usually
referred to as section 501(c)(3) organizations.
- Public school
systems.
- Cooperative
hospital service organizations.
- Uniformed
Services University of the Health Sciences (USUHS).
- Public school
systems organized by Native American tribal governments.
- Certain
ministers.
Note: An
organization may qualify for exemption from federal income tax if it is organized and operated exclusively for one or more of
the following purposes: charity, religion, education, science, literacy, testing
for public safety, fostering national or international amateur sports
competition, and the prevention of cruelty to children or animals. To qualify,
the organization must be a corporation, community chest, fund, or foundation. A
trust is a fund or foundation and will qualify. However, an individual or a
partnership will not qualify.
Who May
Participate in a 403(b) Plan?
Employees of the above list of employers may participate in the 403(b) plan
maintained by the organization.
How is a
403(b) Plan Established?
The requirements for establishing a 403(b) plan depend on whether the
employer will be making contributions or if only
elective deferral contributions will be made to the 403(b) plan.
Plans Receiving
Employer Contributions (Title 1 Plans)
A 403(b) plan to which employer contributions are made is referred to as
Title 1 403(b) plan. To establish a Title 1 403(b) plan, the organization,
in accordance with the resolution passed by the organization's governing
body, executes a 403(b) plan document. In addition, employees are provided a
summary plan description agreement (SPD), which must be written in non-legal
language so that the average person can understand it. The SPD must include
explanations of the following:
- A
description of what the plan provides for employees and how it operates.
- When
employees may begin to participate in the plan.
- How
employees' service and benefits are calculated.
- When
employees' benefits become vested.
- When
employees will receive payment and in what form.
- How
employees may request benefits.
- The
employees rights under ERISA.
Plans Receiving Only Elective-Deferral Contributions (Non-Title
1 Plans)
A 403(b) plan to which only elective deferral contributions are made is
referred to as a Non-Title 1 403(b) plan. In addition to issuing an SPD that
includes the items listed above, the organization should do the following
when establishing a Non-Title 1 403(b) plan:
- Notify
employees of the financial institutions with which they may establish and maintain
their individual 403(b) accounts.
- Provide
explanations to employees of how they may make salary deferral
contributions to the plan and the requirements for making such
contributions, including documentation requirements.
- Make
arrangements with the payroll department to deduct deferral contributions
from the paycheck of employees (who elect to make deferral contributions)
and remit these amounts to the respective financial institutions.
|
Eligible
Compensation
Employees' compensation is based on W-2 wages. An employee's
compensation in excess of $200,000 may not be considered for purposes of making
a 403(b) contribution.
Next==>>
Contributions to Your 403(b) Plan
|
