(b)lines Ask the Experts – What Is a 403(c) Contract Within a 403(b) Plan?

Experts from Groom Law Group and Cammack Retirement Group answer questions concerning 403(b) plans and regulations.

“I work for a private tax-exempt that maintains an ERISA 403(b) plan. Do you have any idea what a 403(c) contract is? I noticed it when reviewing plan balance information, and asked my recordkeeper representative about it, but he appeared to be as stumped as I was!”


Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:


A 403(c) contract is the result of yet another unique feature of 403(b) plans that make them different from other types of retirement plans, such as a 401(k). A 403(c) contract is a nonqualified annuity contract that, in general, is the result of an annuity contract that fails to satisfy the requirements of 403(b).


What could cause a 403(b) contract to fail to satisfy Code Section 403(b) and thus be treated as a 403(c) contract? One example of this is an “Excess Amount” or an amount in excess of the 402(g), 401(m) or 415 limits. Those excesses would generally be treated as a separate contract under section 403(c) contract. Treatment of a contract as a 403(c) contract can also be used to correct other 403(b) plan failures under the IRS retirement plans corrective procedures known as the Employee Plans Compliance Resolution System (EPCRS). It should be noted that 403(c) contacts are subject to less favorable tax treatment than 403(b) contracts.


Also, for 403(b) plans with a vesting schedule, another quirk of the 403(b) rules is that non-vested contributions are ALSO treated as contributions to a 403(c) annuity contract until vested. However, such contributions are NOT subject to the less favorable tax treatment of 403(c).



NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.


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