(b)lines Ask the Experts – Incentivizing 403(b) Participants to Retire

February 25, 2014 (PLANSPONSOR (b)lines) – “Our university is attempting to put together a faculty retirement incentive plan.

“Are there any enhancements to our 403(b) plan that we can make as a part of this package in order to incentivize faculty to retire?” 

Michael A. Webb, vice president, Retirement Practice, Cammack Retirement Group, answers:

Though the Experts realize that faculty retirement can be a difficult issue, there are indeed enhancements that may be available in a 403(b) plan, depending on the features of the package to be offered.

The primary enhancement, and one that is often overlooked in assembling retirement incentive programs, is a provision specific to 403(b) plans under Section 1.403(b)-4(d) of the final 403(b) regulations. This provision permits employer contributions to be made for former employees for up to five calendar years following the year of employment termination. Thus, a faculty member could retire, yet continue to receive his/her her 403(b) employer contribution in retirement. However, the contribution is subject to nondiscrimination testing, so this solution may work more favorably at public rather than private institutions, since public colleges and universities are not subject to the discrimination provisions of the Code.

If the program is incorporating phased retirement provision, where faculty continues to work in a more limited part-time capacity as a bridge to retirement, another provision that might be useful is allowing employees to take distributions while still employed past retirement age. Indeed, many 403(b) plans permit in-service distributions at age 59 ½. If this is not the case with your 403(b) plan (or plans), you may wish to consider amending your plan(s) to include such a provision.

Good luck with your initiative!


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.