Choosing between 401(k) and 403(b)

BNA has published a brief article on choosing between 403(b) and 401(k) formats for retirement plans at http://www.bnatax.com/tm/insights_kenty.htm. The summary is well written and brief, both of which are real virtues. I have only two comment.

First, one of the stated reasons for choosing 403(b) is the availability of investments other than annuities and mutual funds. This is certainly true, but warrants a qualifier. Since an employer can have all three of a qualified plan, a 403(b) and a 457 plan, this is not an either/or choice. For example, to the extent the pressure for other types of investments comes from a short list of employees, a complementary 457 plan would provide a pressure release valve (in addition to allowing adding the 457 limitation to the applicable variant of 415 and 402(g) limitations). Also, all such issues are irrelevant if the 403(b) would be a church plan.

Second, the 403(b) version of the overall 415 limitation is systematically higher than the 401(k) version. The primary reason for this is the use, in defining compensation, of the most recent full-time equivalent year of service rather that a 12-month measurement period.

Defective Contract Exchanges

The Segal Group issued a timely and well-written reminder of the June 30th deadline for defective contract exchanges from the 9/24/07 to 12/31/08 time period. It can be found at http://www.sibson.com/publications-and-resources/compliance-alert/archives/?id=1279.