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

“I am an adviser who is familiar with 403(b) plans, but today I came across something I have never heard of—a ‘403(a)’ plan.

“Is there such a plan? If so, how is it different from a 401(a) or 403(b) plan?” 

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

Yes, there is indeed such a thing as a 403(a) plan, though it is rare to actually see such a plan in operation!  They are something of a relic of the early days of the Employee Retirement Income Security Act (ERISA) when more of pension funding was done with insurance contracts.

A 403(a) plan (and indeed, there is a Section 403(a) of the Code, right before 403(b), but often overlooked) is essentially a 401(a) plan funded by annuity contracts instead of a trust. It should be noted, however, that unlike 403(b) plans, which are limited to nonprofit employers, such as 501(c)(3) and public education organizations, any employer that can sponsor a 401(a) may sponsor a 403(a) plan.

Other than the fact that funding through a trust is not permitted, the rules for 403(a) plans are generally the same as those for 401(a) plans; only employer contributions are generally permitted and the more restrictive distribution rules of 401(a) plans apply, to name but two examples.  This lack of a distinction between 401(a) and 403(a) plans, and lack of any inherent advantage to 403(a) plans over 401(a) plans, is most likely the reason that 403(a) plans are uncommon.   

Thank you for your question. Now maybe we will get one on 403(c) plans!


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.