403(b) plans are only an option for organizations that are "organized and operated exclusively for religious, charitable, scientific, public-safety testing, literary, or educational purposes" as determined by Section 501(c)(3) of the Internal Revenue Code. These types of institutions typically include K-12 public schools, colleges, universities, hospitals, libraries, philanthropic organizations, and churches.

A 403(b) plan allows participants to contribute to the plan on a pre-tax basis by a salary reduction agreement with their employer. Money from the participant’s contributions is directed to a financial institution approved by the employer and is limited to investments in the following three choices:

Annuity and variable annuity contracts with insurance companies.
A custodial account made up of mutual funds.
Life insurance contracts.

Participants are limited to the vendors and options offered or sponsored by their employers. It is not uncommon for choices to be limited to annuity products (especially at K-12 schools) that offer no direct access to mutual funds. Participants can request that their employers add additional investment options and if they don’t, there are steps that can be taken to transfer assets to other investments using IRS Revenue Ruling 90-24. However, participants should use care to ensure that unnecessary fees or expenses from surrender charges and penalties aren’t incurred in the transfer.

If an employer maintains an "arm's-length" relationship with the vender and does not contribute to the plan, 401(b) plans are not subject to ERISA (Employee Retirement Income Security Act of 1974) laws and require no “plan document,” which means less administrative cost and no federal paperwork or fiduciary relationship. However, if an employer makes contributions to the plan (generally as a matching contribution), exerts too much influence in the plan administration and/or the investment selection, or the plan is involuntary, then the plan would fall under the ERISA guidelines.

As a result of EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001), money from a 403(b) can be "rolled" into a 401(k) or qualified IRA account and conversely, money from those accounts can be rolled into a 403(b). EGTRRA also allowed for increased contributions limits and for a "catch-up" provision when participants are aged 50 or over.

Please Complete an Employee Census if you are interested in this plan.