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 403(b) plans are going to look a lot like 401(k) plans starting January 1, 2009 when the new final regulations become effective. (See my posts last year, If it looks like a 401(k), acts like a 401(k), and sounds like a 401(k), then it must be a 403(b) Part 1 and Part 2). 

Non-profits can generally also sponsor a 401(k) plan, and some are considering making a switch. But while the plan document requirement is now common to both, there are some important differences that non-profits should consider about making a change. Here are just a few:

  • Discrimination Testing. 401(k) plans are subject to testing. 403(b) plans are not, but must make deferrals "universally available".
  • Investment Options. 401(k) plans have a wide-range of investment options. 403(b) plans are restricted to custodial accounts invested in mutual funds or annuity contracts issued by insurance companies.
  • Catch-up Contributions. Qualifying 403(b) plans can permit up to an additional $3,000 in catch-up contributions by eligible employees in addition to the $15,500 and $5,000 catch-up limits applicable to both types of plans.

It’s a little more involved than this, of course., and here’s a link to Ft. William’s more comprehensive discussion of the choices, Should Nonprofits Switch From 403(b) to 401(k).

Picture credit:  Artist Robert L. Barnum’s Jump Ball, a sculpture on Ferris State University’s Michigan Art Walk in Big Rapids, Michigan.