Publication 4406 (10-2004) 403(b) AND 457 RETIREMENT PLANS -- WITH PLAN FEATURE COMPARISON CHART
Publication 4406 (10-2004)
- Institutional AuthorsInternal Revenue Service
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Internal Revenue Service Tax Exempt and Government Entities Employee Plans Division
403(b) and 457 Retirement Plans
This brochure outlines features of 403(b) and 457 retirement plans in an easy-to-read chart.
403(b) PLANS are adopted by public and private schools, colleges, universities, churches, public hospitals, and charitable entities tax exempt under section 501(c)(3) of the Internal Revenue Code (IRC).
457 PLANS are deferred compensation plans described in the IRC section 457. They are available to certain state and local governments and non-governmental entities that are tax exempt under IRC 501.
Common errors found in the operation of 403(b) plans include:
Excess IRC 402(g) The amount of salary reduction contributions
contributions, which exceeds the annual dollar limitation ($13,000
includes violating for 2004). The excess may be the result of poor
the 15-year catch-up internal controls, or failure to aggregate
rule limitations. deferrals made to other
403(b)or
401(k)plans.
Violations of the 15-year catch-up rule occur
when the employee has exceeded the $15,000
lifetime limitation, or when the employee is
not employed by an eligible employer.
Universal Excluding eligible employees from participation,
availability: IRC usually part-time employees that would qualify
403(b)(12)(A)
. to participate. Eligible employees are not
given the right to make salary reduction
contributions. Employers often misapply
eligibility and coverage conditions to
employees who are otherwise eligible to make
salary reduction contributions under IRC
section
403(b)(12).
Excess IRC
415Generally, the sum of elective deferrals
contributions. and employer contributions cannot exceed the
greater of $41,000 or 100% of includible
compensation for 2004.
Plan loans that Common violations include: failure to make
violate IRC
72(p). required payments when due resulting in default
of the entire loan, poor documentation, and
loans from multiple vendors that in the
aggregate exceed the IRC
72(p)limits.
Hardship Common violations include: inadequate
distribution documentation that the distribution is the
failures. result of a financial hardship, and
distributions from multiple vendors that in
the aggregate exceed the amount needed to
relieve the hardship.
403(b) and 457 Retirement Plans — Plan Feature Comparison Chart
SPONSOR/ WRITTEN PLAN
ELIGIBLE ELIGIBLE DOCUMENT
PLAN EMPLOYER PARTICIPANTS REQUIRED
---------------------------------------------------------------------
401(k)
• all non- • common law yes
government employees
employers
---------------------------------------------------------------------
403(b)
• public education • common law • not for IRS
employers employees purposes (see
•
501(c)(3)DOL rules)
organizations
---------------------------------------------------------------------
457(b)
• state and local • common law yes
Governmental governments employees
• independent
contractors
---------------------------------------------------------------------
457(b)
• any
501(c)• select group yes
Tax-Exempt tax-exempt of management
Organizations organization or highly
compensated
employees
• independent
contractors
---------------------------------------------------------------------
457(f)
• state and local • common law • generally,
Government governments employees written agree-
and Tax-Exempt • any
501(c)• independent ment such as
Organizations tax-exempt contractors an employment
organization contract
[Chart continued]
MASTER AND
DETERMINATION PROTOTYPE BASIC
LETTER SUBMISSION CONTRIBUTION
PLAN AVAILABLE AVAILABLE LIMITS
---------------------------------------------------------------------
401(k)
yes yes • elective deferrals
402(g)
– $13,000 (2004)
increasing to
– $15,000 (2006)
• employer &
employee
$41,000 or
100% of
compensation
---------------------------------------------------------------------
403(b)
no no • elective deferrals
402(g)
– $13,000 (2004)
increasing to
– $15,000 (2006)
• employer &
employee
$41,000 or 100%
of includible
compensation
---------------------------------------------------------------------
457(b)
no no • employer &
Governmental employee
– $13,000 (2004)
increasing to
– $15,000 (2006)
---------------------------------------------------------------------
457(b)
no no • employer &
Tax-Exempt employee
Organizations – $13,000 (2004)
increasing to
– $15,000 (2006)
---------------------------------------------------------------------
457(f)
no no • generally, no
Government limit on employer
and Tax-Exempt or employee
Organizations contributions
[Chart continued]
AGE 50
CATCH-UP CATCH-UP LOANS
PLAN CONTRIBUTIONS CONTRIBUTIONS PERMITTED
---------------------------------------------------------------------
401(k)
no •
414(v)yes
– $3,000
(2004)
increasing
to
– $4,000
(2005)
– $5,000
(2006)
---------------------------------------------------------------------
403(b)
•
402(g)(7)catch-up •
414(v)yes
– selected employers – $3,000
– employee must have (2004)
15 years of service increasing
– limited to lesser of: to
$3,000; $15,000 less – $4,000
previously excluded (2005)
special catch-up; – $5,000
$5,000 multiplied (2006)
by years of service
minus previously
excluded deferrals
---------------------------------------------------------------------
457(b)
• special
457catch-up •
414(v)yes
Governmental – 3 years prior to the – $3,000
year of normal (2004)
retirement age increasing
– limited to lesser of: to
twice the basic – $4,000
annual limit [$26,000 (2005)
(2004) increasing to – $5,000
$30,000 (2006)]; or (2006)
basic annual limit
plus under-utilized
basic annual limit
in prior years
---------------------------------------------------------------------
457(b)
• special
457catch-up no no
Tax-Exempt – 3 years prior to the
Organizations year of normal
retirement age
– limited to lesser of:
twice the basic annual
limit [$26,000 (2004)
increasing to $30,000
(2006)]; or basic
annual limit plus
under-utilized basic
annual limit in
prior years
---------------------------------------------------------------------
457(f)
no no no
Government
and Tax-Exempt
Organizations
[Chart continued]
TIMING OF OTHER
PLAN DISTRIBUTIONS DISTRIBUTIONS ROLLOVER
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401(k)
generally, • hardship • yes, same
• death • QDRO as
401(a)
• 59 1/2 (qualified • must satisfy
• severance from domestic distribution
employment relations require-
• disability order) ments
---------------------------------------------------------------------
403(b)
generally, • hardship • yes, same
• death • QDRO as
401(a)
• 59 1/2 (qualified • must
• severance from domestic satisfy
employment relations distribution
• disability order) require-
ments
---------------------------------------------------------------------
457(b)
• 70 1/2 • unforeseeable • yes, same
Governmental • severance from emergency as
401(a)
employment • small in-active • must
– special rules accounts satisfy
for independent • QDRO distribution
contractors (qualified require-
• minimum required domestic ments
distribution relations
order)
---------------------------------------------------------------------
457(b)
• 70 1/2 • unforeseeable no
Tax-Exempt • severance from emergency
Organizations employment • small in-active
– special rules accounts
for independent • QDRO
contractors (qualified
• minimum required domestic
distribution relations
• special order)
distribution
elections
---------------------------------------------------------------------
457(f)
• taxable when no • taxable when no
Government substantial risk no substantial
and Tax-Exempt of forfeiture risk of forfei-
Organizations ture
[Chart continued]
EMPLOYEE PLANS
TRUSTEE-TO- TERMI- COMPLIANCE
TRUSTEE NATION RESOLUTION
PLAN TRANSFER OF PLAN SYSTEM (EPCRS)
---------------------------------------------------------------------
401(k)
yes yes yes
---------------------------------------------------------------------
403(b)
• purchase no yes
permissive
service –
government
plans
in-service
•
403(b)
to another
403(b)
in-service
---------------------------------------------------------------------
457(b)
• purchase yes no
Governmental permissive – special 180-day
service rule to correct
• government for government
457(b)
to – submission
another accepted on a
government provisional basis
457(b)
outside EPCRS
---------------------------------------------------------------------
457(b)
• tax exempt yes no
Tax-Exempt
457(b)to – may be
Organizations another accepted
tax exempt outside EPCRS
457(b)
as IRS develops
experience
---------------------------------------------------------------------
457(f)
no no no
Government
and Tax-Exempt
Organizations
403(b) and 457 Information Resources
• Click on RETIREMENT SOURCE FOR PLAN SPONSORS/EMPLOYERS, and then access
403(b)/
457PLANS under TYPES OF PLANS.
• 403(b)/457 Online Resource Guide provides information on these plans including IRC and regulations, recent law changes, correction program information, FAQs, published guidance, and educational services.
Customer Assistance
for technical and procedural answers to your retirement plan tax law inquiries.
Access EP CUSTOMER SERVICES under RELATED TOPICS.
• Internal Revenue Service
Tax Exempt and Government Entities
Customer Account Services
P.O. Box 2508
Cincinnati, OH 45201
- Institutional AuthorsInternal Revenue Service
- Jurisdictions
- LanguageEnglish
