How 403(b) plans work

On Board Online • Legal Agenda • February 16, 2009

Participants in retirement savings plans known as 403(b) plans have deducted from their gross income contributions that are invested in either annuity contracts issued by qualified insurance companies or custodial accounts that are invested exclusively in mutual funds. Typically, participants select from investment products offered by plan vendors.

School districts are not permitted to administer 403(b) plans. Instead, they must contract with a third-party administrator. The plan administrator distributes participant contributions to vendors selected by the employee after the district deducts the money from the participant’s paycheck.

Plan administrators also can act as investment product vendors.