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COMPARISON OF CODE 403(b) and CODE 401(k) PLANS

October 2008, Updated May 2010, Updated 10/17/13

Features

1. Eligible
Employers

Code 403(b)

Public schools, public colleges and


universities, Indian tribal
government schools
and church organizations.

Code 401(k)

Generally, corporations,
partnerships, sole
proprietors, taxexempt employers,
private schools,
colleges, and
Code 501(c)(3) entity
The employer must be organized and universities, and
operated exclusively for at least one church organizations.
of the following purposes:
No governmental

Religious
employers (unless
established on or

Charitable
before May 6, 1986).

Scientific

Public Safety Testing

Animal or Child
Abuse Prevention

Literary

Education

Promotion of
Amateur Sports (not the
sports facility)

Deemed 501(c)(3) Entities

Cooperative Hospital
Services Organization

These 501(e)
organizations perform
certain functions on behalf of
501(c)(3) organizations

Foundations

Non-profit

foundations under509(a)
and private
foundations under 4942(j)
(3) are eligible. They
must satisfy 501(c)
(3) before they can satisfy
509(a)or 4942(j)(3).
Uniformed Services

University of Health. P.L. 96613 gave permission to this


organization to have a
403(b) for civilian staff and
faculty.
When in doubt IRS Form 1023:
Form 1023 is the Application for
Recognition of Exemption under
Section 501(c)(3).

2. Eligibility to
Defer

Exclusions from
participation

Eligibility:
Immediate

Eligibility:
maximum of 1 year
of service and age
21

Universal Availability requires all


Exclusions are those
employees of the entity to be
eligible to defer. There are a few permitted in a
qualified plan.
exceptions:
Specifically:
Final 403(b) Regulations,
Exceptions to Universal
Availability Rule

NRA with no US
income

NRA with no

US Income

If Eligible to

participate in:
another 403(b),
a 401(k), or
a Gov't. 457(b)
Work Less

than 20 hrs.

The above exceptions replaced those


found in Notice 89-23.
Note: Church plans, by definition,
are exempt from the universal

Collectively
bargained
Classification
exclusions, provided
410(b) coverage is
passed.

availability rules.

3. Eligibility to
participate

a. Match

b. Discretionary

4. ERISA
Coverage

a. Employer can
a. Employer can define conditions. define conditions.
Maximum is generally age 21/1 year Maximum is generally
of service.
age 21/1 year of
service.

b. Employer can define conditions. b. Employer can


Maximum is generally age 21/1 year define conditions.
of service.
Maximum is generally
age 21/1 year of
service.
501(c)(3) entity can be a non-ERISA ERISA Plan only.
Plan if certain conditions are met.
Governmental and Church plans are
exempt from being ERISA plans.

Governmental and
Church plans are
exempt from being
ERISA plans.

A Church may elect to be covered by


ERISA.
A Church may elect to
be covered by ERISA.
5. Disclosure

SPD, SAR and Form


ERISA Plan: SPD, SAR and Full Form 5500, etc.
5500, etc.
Non-ERISA Plan: None

6. Vesting
ERISA 403(b) subject to ERISA
vesting requirements.

As determined by
employer under 411.

Non-ERISA not subject to ERISA


vesting.
7. Joint & Survivor
Annuity
ERISA Plan: Yes, unless safe
Requirement
harbored.

Yes, unless safe


harbored.

Non-ERISA Plan: No

8. Funding
Vehicles
a.
a. Annuity

Yes

a.

Yes

Contracts
b. Custodial
Accounts (Mutual
Funds)
c. Other Broad
Investment
Options

b.

Yes

c. No, unless the plan is sponsored


by a church or a convention of
churches.

b.

Yes

c. Yes, as governed
by the plan document

9. Participant
Directed
Investments
a. ER selects
options

a.

Yes

b.

Yes

a.

$17,500 in 2013.

b. ERISA 404(c)

a.

Yes

b.

Yes

a.

$17,500 in 2013.

10. Limitations on
Contributions
a. Code 402(g)
b. Certain participants with 15
b. Code 402(g)(7) years service may increase limit up
Special Catch- to $3,000 per year to maximum
lifetime of $15,000.
up
c. Code 414(u)
Catch-up

d. Code 415
Annual Additions
11. Code 415
Aggregation

c.

Age 50 and above.

b.

c.

Not available

Age 50 and above.

d. 100%/$51,000 in 2013. [100% d. 100%/$51,000 in


of includible compensation as defined 2013. [100% of
under 403(b)].
415(c)
compensation.]
Generally, a participant in a Code
403(b) plan need not aggregate
contributions made thereunder with
contributions to a qualified plan for
purposes of the Code 415 limit.

Code 401(k)
contributions are
always aggregated with
contributions to a
qualified plan for
purposes of the Code
415 limit.

Separate article being written on the


exceptions.
12. Code 404
Limit

N/A
25% of compensation
in 2013.
N/A to tax-exempt
sponsors.

13.
Antidiscrimination
a. Deferrals
a.

No testing

b.

ACP Test; Safe Harbor

b. Matching

c. Discretionary
ER

c. Code 401(a)(4), 401(a)(5),


401(a)(17), 410(b) and 415(c).

Note: No testing
for governmental
organization

a. ADP Test; Safe


Harbor
b. ACP Test; Safe
Harbor
c. Code 401(a)(4),
401(a)(5), 401(a)(17),
410(b) and 415(c).

14. PreRetirement
Distributions
a. Hardships
b. Loans
c. In-Service
Withdrawals
before age 59

a.

Yes

b.

Yes

c. Yes, for employer contributions


in an annuity contract, but not for
employer contributions in a custodial
account. Deferrals must wait until
age 59 1/2.

a.

Yes

b.

Yes

c. Yes, for vested


employer contributions.
Deferrals must wait
until age 59 1/2

15. Distributable
Events
a. Death
a.

b.

Yes

c.

Yes

d.

Yes

Yes

c. Age 59
c.

Yes

d. Severance from
Employment
d.

Yes

e. Termination of
Plan

Yes

Yes

b. Disability
b.

a.

e. Yes, Revenue Ruling 2011-7

e. Yes

a. Lump sum, installments and


annuities.

a. Lump sum,
installments and

16. Distributions

a. Forms

b. Required
Beginning Date

c. Aggregation of
RMD

annuities.
b. Generally, the later of age 70
b. Generally, the later
or the non-5% owner's actual date of
of age 70 or the nonretirement. 5% owners by April 1
5% owner's actual date
after the year age 70 is reached.
of retirement. 5%
owners by April 1 after
However, for Pre-1987 accruals the
the year age 70 is
required beginning date is the later
reached.
of age 75 or the participant's actual
date of retirement. Governmental
employees may use the later of age
75 or the participant's actual date of
retirement for all benefits.
c. 403(b) RMDs may be aggregated.

c. 401(k) RMDs may


not be aggregated.

a. Yes, for eligible rollover


distributions.

a. Yes, for eligible


rollover distributions

b.

b. Yes

17. Taxation
a. Mandatory
Withholding
b. Early
Distribution Tax
c. Conversion to
Roth IRA
18. IRS
Qualification

Yes

c. Yes

c. Yes

Preapproved (M&P and


Prototype Program and LRMs issued. Volume Submitter) and
Custom Determination
Volume Submitter Program also
Letter Program.
(Prior to 2007 regulations, Only
through a PLR.)

19. Correction of
Defects
20. Code 416
Top Heavy Rules

EPCRS

EPCRS

Top heavy rules do not apply to


403(b) arrangements

Top heavy rules apply

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