403(b) accounts are for employees of tax exempt organizations, public schools, certain hospitals and religious institutions. These accounts have many similarities to 401(k)s such as annual contribution limits, catch up provisions, having tax deductible features or a ROTH feature. But they also have two major differences: the 15-Year Rule and plan setup and administration.
The 15-Year Rule states that if an employee has 15 years of service with their employer they can save an additional $3,000 per year above the normal $17,500 that 403(b)’s allow. This additional amount has a lifetime maximum of $15,000 so the employee could make 5 years worth of these extra contributions. The 15-Year Rule also states that normal age-based catch-up provisions can apply at the same time which would bring the maximum contribution in one year to $26,000.
When a 403(b) is set up as an ERISA (Employee Retirement Income and Security Act of 1974) plan, it must follow the same guidelines and rules as a 401(k). The rules state that employees must be given certain disclosures about the plan and that certain people can be deemed a fiduciary thus having significant responsibilities. An important part of establishing any ERISA plan is to have assistance from an advisor who is familiar with the Global Fiduciary Standards and provide prudent guidance.
In setting up non-ERISA 403(b) plans the employer is stating they want no discretionary authority over the plan or choices that the employees have. When the involvement of the employer is limited to administrative operations then this exemption may apply. While these plans still need a written plan document outlining the plans rules and options, the employer is still limiting their responsibility under the exemption.
To understand better the 403(b) options of your employer or to find out if your institution is eligible for this kind of a plan, contact a Trilogy Advisor.