Can 403(b) Sponsors Offer Money-Purchase Plans?

Q: In a recent Ask the Experts column, you mentioned that it was possible for a 403(b) plan to be a money-purchase plan. I thought only 401(a) plans were money-purchase plans; am I missing something?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Though 401(a) money-purchase plans are far more common than 403(b) money-purchase plans, there is nothing in the Internal Revenue Code or other regulations that prohibits a 403(b) plan from utilizing a money-purchase formula. The primary reason that you rarely see a 403(b) money-purchase plan is that the type of entities that sponsor 403(b) plans (e.g., tax-exempt organizations) do not often have the type of consistent cash flow to commit to the minimum funding requirements (i.e., required employer contribution) of a money-purchase plan. On the rare occasions where a money-purchase formula exists in a 403(b) plan, it’s commonly for collectively bargained employees in a situation in which the plan sponsor agreed to minimum funding as a result of union contract negotiations.

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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