Affordable retirement plans for tax-exempt organizations.

ERISA is the primary federal law that sets the requirements for employee retirement and welfare benefit plans. 403(b) plans sponsored by nonprofit 501(c)(3) organizations may be exempt from ERISA if they meet certain requirements. Note: Human Interest does not service non-ERISA plans.

The main difference between 403(b) and 401(k) plans is that a 403(b) plan can only be offered by tax-exempt organizations. These organizations include but are not limited to, public schools, 501(c)(3) institutions, or cooperative hospital service organizations. 

403(b) plans are also exempt from most annual IRS nondiscrimination testing and can offer employees who have worked with a company for 15 years to make catch-up bonuses of $3,000 per year. 403(b) plans may only invest in mutual funds or annuities. 

The primary difference between 401(a) and 403(b) plans is eligibility and plan design. 401(a) plans allow employers to require enrollment for eligible employees and set contribution models. 403(b) plans do not require enrollment into the plan. 

403(b) plans have the same deadlines as most traditional 401(k) plans. Some of the major deadlines include: 

• January 15: Employers must submit the prior year’s census data to their plan’s recordkeeper. Census data is used to complete compliance testing. 

• March 15: Last day to distribute any required refunds to highly-compensated employees (HCEs) for failed ACP testing (403(b) plans are not subject to ADP testing).

• July 31: Calendar year plans are required to file Form 5500, which must be submitted to the DOL to satisfy required annual reporting under ERISA. This due date may be extended until October 15.

• December 31: Make any last-minute adjustments to your plan. This includes setting up a qualified retirement plan for the following year, signing plan document amendments, and distributing current year RMDs. 

However, the main difference is that 403(b) plans are not subject to ADP, or Top Heavy testing. ADP testing is meant to ensure that the average rates of employee contributions and the related company match are proportionate between highly compensated employees and non-highly compensated employees. 

Employees who are eligible to enroll in a 403(b) plan must be employees of one of the following: 

• 501(c)(3) tax-exempt organizations

• Public school systems

• Public school systems organized by Indian tribal governments

• Churches

• Ministers 

• Self-employed ministers

• Chaplains

For 2025, 403(b) contribution limits have been updated to provide more saving opportunities, especially for those approaching retirement. Here's a comprehensive explanation of the current limits:

Basic Contribution Limit: The base employee contribution limit for 403(b) accounts is $23,500 for 2025. This represents the maximum amount any eligible employee can contribute through salary deferrals during the year.

Age-Based Catch-Up Contributions: The catch-up contribution structure now has different tiers based on age:

• For participants aged 50-59 or 64 and older: An additional $7,500 can be contributed, bringing their total possible contribution to $31,000

• For participants aged 60-63: An enhanced catch-up amount of $11,250 is available, allowing for a total contribution of $34,750

Service-Based Catch-Up (15-Year Rule): A unique feature of 403(b) plans continues in 2025: Employees with 15 or more years of service at the same eligible organization may qualify for an additional catch-up contribution of up to $3,000. This special catch-up is available regardless of age and can be used in addition to the age-based catch-up contributions. To qualify, employees must have:

• 15 years of full-time service with the same eligible employer

• An annual addition of no more than $5,000 per year of service

• A lifetime maximum additional contribution of $15,000

This means that in 2025, an eligible employee aged 60-63 with 15+ years of service could potentially contribute:

• $23,500 (base contribution)

• $11,250 (age-based catch-up)

• $3,000 (service-based catch-up) For a total of $37,750

It's important to note that starting in 2025, employees who earned more than $160,000 in the previous year must make any catch-up contributions (both age-based and service-based) as Roth contributions rather than pre-tax contributions.