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IRC 403(b) Tax-Sheltered Annuity Plans – Written Program: Mandatory Provisions

A 403(b) plan’s written program must contain all the following material terms and conditions:

Eligibility – The plan must explain who may participate.

If a plan, other than a church plan, allows elective deferrals (salary deferrals), it must satisfy universal availability, which means that if the plan permits one employee to defer salary, it must extend this offer to all employees with limited exceptions.

Benefits – Generally, the Code requires that employer contributions (other than in a governmental plan, a church plan or a 403(b) plan safe-harbor 403(b) plan) satisfy the following nondiscrimination requirements:

  • the percentage of highly compensated employees as compared to non-highly compensated employees benefiting under the plan is not unduly high according to the minimum coverage tests;
  • does not favor HCEs in terms of contributions, benefits, rights, features, plan amendments or plan terminations; and
  • the average contribution percentage rules relating to matching and after-tax employee contributions.

Limitations – Contribution and benefits under a 403(b) plan, including all aggregated plans, contracts or arrangements of the employer, must comply with the following limits:

Contracts (investments) under the plan – Individual accounts in a 403(b) plan can be any of the following types:

  • 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.

403(b) plans cannot be funded with life insurance (issued after September 24, 2007), endowment, health, accident or other types of insurance contracts.

Timing and form of plan benefit distributions – The plan may not distribute any amounts unless a participant:

The written program must state any form in which the plan may pay benefits, such as a lump sum distribution or annuity.

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