Publication 4483 (11-2013) 403(b) TAX-SHELTERED ANNUITY PLAN FOR SPONSORS

Sponsors

Be Aware ofCommon Mistakes

As a 403(b) plan sponsor, it's important to know the tax rules that apply to your 403(b) plan and to pay attention to the operation of your plan so you can:

plan is a retirement plan offered by a public school or 501(c)(3) tax-exempt organization for its employees. An employee can only obtain a

annuity or custodial account* under an employer's

plan. These annuities and custodial accounts are funded by employee elective deferrals made under salary reduction agreements, employer contributions or a combination of both.

Read on to learn about:

* Unless otherwise stated, references to 403(b) annuities in this publication will generally also apply to

custodial accounts.

Common Mistakes

It's important to know the tax rules that apply to your 403(b) plan and to pay attention to the operation of your plan.

The IRS commonly finds mistakes in 403(b) plans in these areas:

Written plan requirement. You must have a written plan that describes the way the plan will work and you must operate your plan accordingly.

A 403(b) plan doesn't need to be a single plan document. For example, you may compile the salary reduction agreements, the contracts that fund the plan, and written procedures for eligibility, benefits, dollar limitations, nondiscrimination and universal availability. However, a single plan document makes administration easier, especially if your plan has multiple vendors.

Ineligible employer. Generally, only public schools and 501(c)(3) tax-exempt organizations may sponsor a 403(b) plan.

Universal availability. If you allow one employee to make elective deferrals, you must allow all eligible employees to make them. You may exclude certain groups of employees, such as those normally working fewer than 20 hours per week (less than 1,000 hours per year), students performing certain service, employees who are eligible for elective deferrals under another plan you sponsor and non-resident aliens. You must notify employees of their eligibility to make an initial or change an existing deferral election at least once a year.

Depositing elective deferrals. You must send your employees' deferrals to their annuity providers as soon as is reasonable for proper plan administration (but no later than 15 days following the month of the pay date). If your plan provides an earlier time for transferring elective deferrals, you must follow it.

Excess elective deferrals. The general limit on employee elective deferrals is $17,500 in 2014 (indexed thereafter). If the plan allows, employees may also make catch-up contributions.

Catch-up contributions must be applied to the 15-years-of-service catch-up (if available) before being applied to the age-50 catch-up (See irs.gov/retirement for examples).

You must distribute excess deferrals plus earnings to employees no later than the following April 15 to avoid additional taxes and penalties for the employee and employer. If you don't timely correct excess deferrals, then you'll have underreported your employees' taxable wages on your employment tax return. This will result in withholding too few taxes from your employees' wages and you'll be responsible for the underpayment and penalties.

Employer and employee contributions. The limit on total employer and employee contributions is $52,000 (for 2014, indexed thereafter). The 15-years-of-service catch-up is included in this limit, but the age-50 catch-up isn't. Therefore, the limit for employees who are at least age 50 is up to $57,500 for 2014.

Loans. Loans that don't meet the tax rules may be deemed a taxable distribution that's reported to the employee as income. Some examples are loans when required payments are missed or loans that exceed the limit, often because of loans from multiple vendors.

Hardship distributions. Hardship distributions are considered early distributions if:

Plans may allow for elective deferral and/or employer contributions after an employee separates from service.

In-service exchanges and transfers.

If you find a mistake in your

plan, take steps to bring it into compliance so your employees can continue to save for retirement on a tax-favored basis. You need to timely correct plan mistakes to avoid additional taxes and penalties that may affect you and your employees. You may want to contact a tax professional for help. You can correct most

plan mistakes through the IRS correction programs. See Correcting Plan Errors at

for additional information.

To Learn More . . .

The following publications cover 403(b) plans, other retirement plans and correction programs:

Download these publications at

or order a free copy through the IRS by dialing 800-829-3676 (TAX FORM).

Visit http://www.irs.gov/retirement for online resources covering specific retirement plans (including 403(b) plans). This site has tools such as: