ERISA/Benefits - Code Section 403(b) Plans
Code Section 403(b) plans are individual account-based retirement plans for employees of public schools, state colleges and universities, tax-exempt organizations and ministers. Section 403(b) plans commonly are funded by individual annuity contracts owned by the employee, but also may be funded by a custodial account invested in mutual funds or, for certain church organizations, a retirement income account.
Employee salary reduction contributions under a Section 403(b) plan are made via agreement with the employer, and employer contributions also are permitted. Plans are subject to a "universal availability" requirement, and generally must cover all employees.
While Section 403(b) plans are not "qualified plans" under Code Section 401(a), they resemble qualified plans in a number of ways. Employee contributions are subject to an annual limit ($16,500 for 2010 and 2011). Employer contributions cannot discriminate in favor of highly compensated employees. Distributions generally are not permitted without penalty before age 59-1/2 except in the event of death, disability, early retirement, severance from employment after reaching age 55, or for loans. Section 403(b) plan accounts may be transferred to another employer's 403(b) plan or rolled over to an individual retirement account (IRA) following employment.
For a discussion regarding 2011 year-end compliance issues for employee benefit plans, see "2011 Year-End Compliance Checklist for Employee Benefit Plans."