A Nonprofit Education Guide
for Intermediaries
Plan Design Options:
403(b) vs. 401(k)
Retirement Strategies
FOR FINANCIAL INTERMEDIARIES USE ONLY. NOT FOR USE WITH
PLAN SPONSORS OR PLAN PARTICIPANTS.
Consider the following when speaking to a client about
plan design options
The common misconception is that 401(k) plans have
more years of service with the same qualified employer may
superior product options, while 403(b) plans are locked
defer an additional $3,000 per calendar year, up to a $15,000
into archaic and expensive variable annuity products. This
lifetime maximum, if allowed by the participant’s specific
negative reputation is a result of the type of investment
403(b) plan. This additional contribution is in addition to the
offerings traditionally associated with 403(b). The reality
age 50 catch-up provision available in both a 403(b)
is that identical mutual fund platforms do exist for both
and 401(k).
401(k) and 403(b). MassMutual offers the same pricing
model, quality service, and investments* for all defined
Switching from 403(b) to 401(k)
contribution plan types. With this approach, generally the
If a plan sponsor already has a 403(b) plan and is considering
same advantages apply to 403(b) plans as 401(k) plans.
switching to a 401(k) plan, 403(b) plans cannot be restated
Advantages of 403(b) over 401(k)
to a 401(k) plan. In this case, the sponsor would need to
terminate the 403(b) plan and start up a new 401(k) plan.
ADP Testing
Participants would then have the option to cash out or roll
Although both plans require that matching contributions be
over their account balances into the new 401(k) plan or into
tested for discrimination, 401(k) plans may require testing to
an IRA. In this scenario, the plan sponsor may lose the benefit
demonstrate nondiscrimination regarding employee elective
of leveraging existing plan assets for lower expenses with the
contributions via the Average Deferral Percentage (ADP) test.
new 401(k).
403(b) plans do not have to perform the ADP test because of
the universal availability rule for elective deferrals.
Top Heavy Testing
403(b) vs. 401(k) Comparison
Take a look at the following chart to compare the differences
between 403(b) and 401(k) plans.
Unlike a 401(k) plan that is subject to top heavy testing to
ensure the plan does not unfavorably benefit highly compensated employees, 403(b) plans are exempt from this test for the
same reason as the ADP test.
Additional Catch-up Contributions
Participants in 403(b) plans may have the ability to contribute more to their retirement than they would be able to in a
For more information about how
MassMutual can help you grow your
business, contact your MassMutual
representative or call
1-800-874-2502, option 4.
401(k) plan. In a 403(b) plan, eligible employees with 15 or
* Only two options allowed for underlying investments for a 403(b) plan: 403(b)(1) fixed/variable annuities or 403(b)(7) custodial accounts (mutual funds) 401(k) vs. 401(k) Comparison Chart
ERISA 401(k)
ERISA 403(b)
5500 Filing
Yes
Yes
Annual Audit
Yes generally, if 100 or more participants on first day
of plan year
Yes generally, if 100 or more participants on first day of
a plan year
Written Plan
Document
IRS Determination
Letter
Eligibility
Yes
Yes
Yes
Pre-approved plan document program should be
finalized in 2016
Salary deferrals universally available to all
employees – allows certain exclusions without
requiring coverage testing
Exclusions of certain classifications of employees
allowed but may be subject to coverage testing
Exclusions of certain classifications of employees
allowed for employer contributions but may be subject
to coverage testing
Entry Requirements
May require up to attainment of age 21 and
completion of 1 year of service for eligibility for
employee and employer contributions
Eligibility for employer contributions can require
completion of 2-years of service if vesting is
immediate
Salary deferrals require immediate eligibility – no age
and service requirement allowed
Employer contributions may require up to attainment of
age 21 and completion of 1 year of service
Eligibility for employer contributions can require
completion of 2-years of service if vesting is immediate
Educational institutions may require attainment age 26
for eligibility for the employer contribution as long as
service requirement is no longer than 1-year of service
and contirbution is immediately vested
Contribution limits
Same salary deferral contribution limit as 403(b)
plans
Same age 50+ catch up contribution limit as 403(b)
plans
Total of all employee and employer contributions,
except age 50 catch-up contributions, are subject to
the §415 annual additions limit
Same salary deferral contribution limit as 401(k) plans
Same age 50+ catch up contribution limit as 401(k)
plans
Special catch-up provision may be adopted by certain
qualified organizations allowing participants with
15-years of service with the same employer to make
additional salary deferral contributions
Total of all employee and employer contributions,
except age 50 catch-up contributions, are subject to
the §415 annual additions limit
Top Heavy Testing
Applicable, unless the plan is a 401(k) Safe Harbor
Plan that meets certain requirements
Not applicable
continued
403(b) vs. 401(k) Comparison Chart (continued)
ERISA 401(k)
Nondiscrimination
Testing
ERISA 403(b)
Salary Deferrals
ADP testing – Safe Harbor available to remove
testing requirement
Salary Deferrals
ADP testing not applicable
Subject to §410(b) minimum coverage requirements
Match
ACP testing – Safe Harbor available to remove
testing requirement
Match
ACP testing – Safe Harbor available to remove testing
Subject to §410(b) minimum coverage requirements
Non-Matching Employer Contributions
§401(a)(4) general nondiscrimination rules and §410(b)
minimum coverage requirements apply
Subject to §410(b) minimum coverage requirements
Non-Matching Employer Contributions
§401(a)(4) general nondiscrimination rules and
§410(b) minimum coverage requirements apply
In-Service
Withdrawals
Not subject to §410(b) minimum coverage testing
because of universal availability requirements
Hardship withdrawals allowed from salary deferral
contributions
Hardship withdrawals allowed from salary deferral
contributions
Employer contributions (other than QNEC, QMAC,
and safe harbor contributions) can be withdrawn
after a fixed number of years (at least 2 years),
5 years of participation, attainment of a certain age
or other event provided in the plan document
Employer contributions invested in custodial accounts
cannot be withdrawn prior to age 59½
Age 59½ withdrawals
Rollover/Voluntary Contributions can be withdrawn
at any time
Employer contributions (other than QNEC, QMAC, and
safe harbor contributions) invested in annuity contracts
can be withdrawn after a fixed number of years (at
least 2 years), 5 years of participation, attainment
of a certain age or other event provided in the plan
document
Age 59½ withdrawals
Rollover/Voluntary Contributions can be withdrawn at
any time
Required Minimum
Distribution
By April 1 of the calendar year following the later
of: 1) the year in which the participant turns age
70½ , or 2) the year in which the participant
terminates/retires
By April 1 of the calendar year following the later of:
1) the year in which the participant turns age 70½ , or
2) the year in which the participant terminates/retires
Exception: If the participant is a 5% owner,
distributions cannot not be deferred until retirement
or termination
FOR FINANCIAL INTERMEDIARIES USE ONLY. NOT FOR USE WITH
PLAN SPONSORS OR PLAN PARTICIPANTS.
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Massachusetts Mutual Life Insurance Company (MassMutual) [of which Retirement Services is a division] and its affiliated companies and sales representatives.
RS2847 815
C:06715-04