I received a call from a client who said they want to terminate their 401(k) plan and start a 403(B) plan because it will be better for them. I am not familiar with 403(B) plans and I am hoping that someone on these boards who is familiar with them can fill me in a little bit about why a 403(B) plan would be preferable to a 401(k)? I have a feeling that this client has been approached by a salesperson to make this change and I want to make sure they are making the right decision.

Thank you.

Always suspect the salesperson.

Under the simplest circumstances -- an elective deferral only design -- a 403(B) plan is easier because you can avoid the formalities of ERISA and you have no ADP test. The horrors of exclusion allowance limits go away after 2001. But you have to make the opportunity to defer available to everyone.

If you have more sophisticated needs, you have to work harder at comparison.

Also, if you look beyond pure contribution and employer burden issues, you might wonder if the participants are better off if they aren't being told everything that ERISA would require. You might wonder if the investment and custodial arrangements are better. Some 403(B) providers are better than others. Some 401(k) providers are better than others.

Don't forget to ask if the client is eligible for 403(B). And if it is, why did it go with 401(k) in the first place?