401(a) AND 403(a) Qualified Plans

Section 401(a) or 403(a) plans are available to any for-profit and nonprofit employer. Section 401(a) and 403(a) plans can be either defined contribution or defined benefit plans.

For defined contribution plans funded with TIAA-CREF annuities, no significant difference exists between 401(a) and 403(a) plans. These plans are usually funded solely with employer contributions. After-tax employee contributions are possible, but pretax employee deferrals to 401(a) or 403(a) plans are not permitted.

Although adopting a qualified plan doesn't require a determination letter, virtually all employers, including nonprofit employers, get one. Why? Without a determination letter, the IRS could later rule, e.g., after an audit, that the plan was never qualified and thus not exempt from income tax. If that were to happen, the employer and its employees would be subject to income tax on all past contributions, as well as withholding and other employment taxes. Both parties would also be liable for penalties on overdue taxes.

Sponsors of qualified plans must provide a wide range of financial and nondiscrimination data on their annual Form 5500 report. Reporting for 403(b) plans is much simpler and does not require sponsors to provide data.