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Martha

403(b) Plan For A Nonprofit

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I am looking for a low cost or no cost 403(b) plan that will allow the employer to make a bi-monthly contribution to the employees' plan. Any thoughts or ideas?

 

We are a nonprofit with 29 employees and I think between 15 and 20 will take advantage of this offer. The employees are all low income women who have not previously invested in their retirement.

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Guest Mike H

I would reccoment a low cost mutual fund company - like Vanguard or T.Rowe Price. We use Vanguard, they are low cost and easy to set up with. T. Rowe Price is someone we looked into, they are easy to work with also. Hope that helps.

 

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Martha,

 

Minimum limits and small plans may hinder your search at Vanguard. We have a small staff, as a 501©3, and were turned down by Vanguard, due to a smaller initial contribution than permitted and too few contributors/participants.

 

Be cautious of not BEING SOLD the products that are offerred in the marketplace. You may want do some research on this site(403bwise.com) and you'll find some informative methods for preparing an RFP.

 

Maybe other posters could offer other resources or products that might assist you.

 

Respectfully,

Warren P.

 

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Guest Garry

Stay away from insurance companies. Their loaded with high fees. I like TIAA-CREF, but I don't know if they would take on a company your size. I just want to throw this out there, many small businesses don't want to handle the time and cost associated with doing payroll, therefore many companies have agreements with payroll companies that "lease" employees. The employees are still yours, but all you have to do is send timesheets to the lease company and they process the payroll. The reason why I bring this up is because these companies offer "retirement plans" to leased employees. They can do this because of the large volume of people they have. I know of a company that has been doing this for many years and they are very pleased with the service. I don't work for one of these lease companies, but it was just a thought. However, I don't know if these companies do non for profits. Good luck in your search.

 

Garry

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Guest Try This....

It's true that smaller plans have a harder time getting started. Some companies don't want to mess with you unless you come in with a million+ dollars. T. Rowe Price does not have a minimum to open an account. Vanguard requires $5000 per account to get started, but no minimum for adding new members. So what we did was have one employee transfer $5000 or IRA money to open up the first 403(b). This established the plan for our organization. We then simply added new employees.

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Thank you all very much for the valuable information.

 

Do you know anything about a SEP (simplified employee pension) Plan? I learned of it through Mutual of America. It is a no charge plan. It is a SEP-TDA and not a 403(b) plan.

 

I don't know much about this and wonder if my employees would be better off with a 403(b) plan. Or does it matter?

 

Again, thanks so much for your great advise. Martha

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Martha,

 

A SEP is nothing more than an IRA established for each employee into which employer contributions are made. In fact, if the employee already has an IRA, the SEP contribution can be made into it along with any IRA contributions the employee wishes to make. This permits each employee to make their own decision as to where the money is invested, removing that decision from the employer.

 

A SEP is very easy to establish: All you do is execute IRS Form 5305-SEP, follow the instructions on the form and you have a SEP. No filing with the IRS, just deposit contributions into each employees' IRA.

 

Employer contributions to the SEP must be made on a non-discriminatory basis. Generally, you should use the same percentage of income as a contribution for each eligible employee.

 

Here are a few differences between 403(b)s and SEPs. This list is not exhaustive... others may want to add to the list and give you other comments.

 

403(b) plans may allow participant loans. Loans are not available from IRAs.

 

403(b) plans allow employees to make elective deferrals up to $12,000 with pre-tax dollars. Employee contributions to an IRA are limited to $3,000 and may or may not be deductible, depending on their filing status and adjusted gross income.

 

Distributions from a 403(b) are restricted and require a "qualifying event," such as death, disability, attainment of age 59-1/2 or severance from employments. You can get money out of an IRA at any time, although you may have to pay a penalty.

 

403(b) plans may permit hardship distributions, which are not available from IRAs for the reason just listed.

 

You can take withdrawals from an IRA for first time homebuyer and higher education expenses. You can't do this with 403(b)s.

 

As I mentioned, this is just a short list... others may add to it and provide you with their insight as to which may be preferable. But, it's ultimately your decision.

 

Hope this is of some benefit to you. Best wishes.

 

 

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Martha,

 

A SEP is nothing more than an IRA established for each employee into which employer contributions are made. In fact, if the employee already has an IRA, the SEP contribution can be made into it along with any IRA contributions the employee wishes to make. This permits each employee to make their own decision as to where the money is invested, removing that decision from the employer.

 

A SEP is very easy to establish: All you do is execute IRS Form 5305-SEP, follow the instructions on the form and you have a SEP. No filing with the IRS, just deposit contributions into each employees' IRA.

 

Employer contributions to the SEP must be made on a non-discriminatory basis. Generally, you should use the same percentage of income as a contribution for each eligible employee.

 

Here are a few differences between 403(b)s and SEPs. This list is not exhaustive... others may want to add to the list and give you other comments.

 

403(b) plans may allow participant loans. Loans are not available from IRAs.

 

403(b) plans allow employees to make elective deferrals up to $12,000 with pre-tax dollars. Employee contributions to an IRA are limited to $3,000 and may or may not be deductible, depending on their filing status and adjusted gross income.

 

Distributions from a 403(b) are restricted and require a "qualifying event," such as death, disability, attainment of age 59-1/2 or severance from employments. You can get money out of an IRA at any time, although you may have to pay a penalty.

 

403(b) plans may permit hardship distributions, which are not available from IRAs for the reason just listed.

 

You can take withdrawals from an IRA for first time homebuyer and higher education expenses. You can't do this with 403(b)s.

 

As I mentioned, this is just a short list... others may add to it and provide you with their insight as to which may be preferable. But, it's ultimately your decision.

 

Hope this is of some benefit to you. Best wishes.

Mike, its been awhile. I am still inqusitive and 'wanna kow"/

 

Re: http://benefitslink.com/IRS/ilm2003_33003.pdf

 

IRS Memorandum

Number: 200333003

Release Date: 8/15/2003

SUBJECT: FICA Taxation of State section 403(b) plan

===================

 

SSSection 218 appears involved in this IRS "activity. If SSSection 218 is involved, then GPO/WEP IS ALSO INVOLVED.

 

Check this thought. School district "A" -- No SSS218 -- No FICA. 403b payroll activity "matched" by school district as employer, Question: Is the 403b "deferred tax" activity a "government pension" as defined by GPO/WEP legslation?

 

Please keep in mind ALL funds involved in school "payroll deductions" with "matching" employer "participation" are from State and Local general revenue TAX base with taxpayers as employers.

 

John H.

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Hardtack21:

 

Here's the definition of a governmental pension as found in section 228(h)(2) of the social security act:

 

"(2) The term "governmental pension system" means the insurance system established by this title or any other system or fund established by the United States, a State, any political subdivision of a State, or any wholly owned instrumentality of any one or more of the foregoing which provides for payment of (A) pensions, (B) retirement or retired pay, or © annuities or similar amounts payable on account of personal services performed by any individual (not including any payment under any workmen's compensation law or any payment by the Secretary of Veterans Affairs as compensation for service-connected disability or death)."

 

If the plan provides for employer matching contributions, it would seem to escape the exclusion in ERISA regulation section 2510.3-2(f), causing the plan to be "established and maintained" by the employer. Therefore, I would think that payments under the plan would be considered in applying the rules applicable to the Government Pension Offset and the Windfall Elimination Provision.

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I set up a 403b with T Rowe Price for our small non-profit with a phone call and a signature. They sent a packet and later we added Fidelity and Janus. If I had it to do over I would get Vanguard or TiaaCref because they charge the least and are reputable. But, somebody has to sell/pursuade/educate the investors and that may be the rub. Vanguard has lots of good materials and congratulations for doing this for others....

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