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IRC 403(b) Tax-Sheltered Annuity Plans – Establish a 403(b) Plan

Only public educational institutions or 501(c)(3) tax-exempt organizations may establish a 403(b) plan.

The general steps to establish a 403(b) plan are:

  1. Adopt a written program
    All 403(b) plans, except church plans that do not contain any retirement income accounts, must have a written program that must contain mandatory provisions and may contain other optional provisions.
  2. Establish annuity contracts or custodial accounts for plan participants
    Individual accounts in a 403(b) plan can be any of the following:
    • An annuity contract, which is a contract provided through an insurance company;
    • A custodial account, which is an account invested in mutual funds; or
    • A retirement income account set up for church employees that can be invested in either annuities or mutual funds. 403(b) plans cannot be funded with life insurance (issued after September 24, 2007), endowment, health, accident or other types of insurance contracts. The employer, who is responsible for ensuring its plan complies with all legal requirements, should verify that there is no conflict between the terms of the 403(b) plan and the provisions of any annuity contract or custodial account agreement under the plan. The plan’s terms will overrule any inconsistencies.
       
  3. Obtain an identification number for the plan
    403(b) plans that are subject to ERISA must comply with DOL regulations, which may include obtaining an employee identification number (EIN) for the plan. Governmental, non-electing church and other 403(b) plans that do not meet the safe-harbor requirements under the DOL regulations are not subject to ERISA.
     
  4. Provide information to employees and meet other obligations
    403(b) plans that are not exempt from ERISA must also supply information to plan participants, including a Summary Plan Description, and must meet other fiduciary obligations.

Additional Resources
Find recent guidance, frequently asked questions, forms and publications, and other 403(b) resources.