403(b)(7)
The IRS created the 403(b) in 1958. In 1974 Congress added paragraph (7) which allowed employees to set up retirement plans directly with mutual fund companies. Prior to this change, contributors were limited to investment choices offered by insurance companies. Throughout this site the term 403b is intended to mean all of the following: 403(b), 403(b)(7) and TSA.

402(g) Limit
Salary reduction contributions (also referred to as "elective salary deferrals") made by a participant to all 403(b) arrangements, as well as 401(k) and simplified employee pension (SARSEP) plans, during the calendar year may not exceed $15,000 for 2006 and $15,500 for 2007 (indexed for inflation thereafter). A special "catch-up" limitation may be available for participants who have completed fifteen (15) years of service and who are employed by certain employers, if statutory requirements are met.

415 Limit
An overall limit is placed on the amount of salary reduction contributions and employer (matching and non-matching) contributions that may be contributed on an employee's behalf during a calendar year. Generally, IRC section 415 imposes a limit of the lesser of $44,000 for 2006 and $45,000 for 2007 (indexed for inflation thereafter) or 100% of compensation on the maximum amount that may be contributed annually by a participant to a 403(b) arrangement. Currently, compensation, for IRC section 415 purposes, is defined to be the participant's gross salary (including salary reduction contributions and IRC section 125 ("cafeteria") plan pre-tax contributions). Special "catch-up" limitations may be available for participants who are employed by certain employers, if statutory requirements are satisfied.

457(b) Plan
Section 457(b) of the IRC (Internal Revenue Code) allows agencies of tax-exempt employers and employees of both local and state governments to reserve money for retirement on a pre-tax basis. The employer sponsors this plan and the federal government has created tax advantages for 457(b) contributions. This Plan differs from others because state and local governments that have non-qualified deferred retirement plans under the IRC section 457(b) must obtain all assets from the plan as well as income in trust for the sole benefit of plan participants and their beneficiaries. The Small Business Job Protection Act determined this in 1996.

401(k) Plan
According to the Internal Revenue Code, Section 401(k), employees of private corporations and various tax-exempt associations, can reserve money for retirement on a pre-tax basis through an employer sponsored plan.

Appreciation
When an investment increases in value, it appreciates. For example, a stock whose price goes from $20 a share to $25 a share has appreciated by $5.

Average Annual Return
The hypothetical rate of return, that, if the fund achieved it over a year's time, would produce the same cumulative total return if the fund performed consistently over the entire period. A total return is expressed in a percentage and tells you how much money you have earned or lost on an investment over time, assuming that all dividends and capital gains are reinvested.

Audit CAP (Closing Cap Agreement)
Audit CAP for 403(b) Plans is available to correct Operational, Demographic, or Eligibility Failures other than a failure that has been corrected under APRSC or TVC or is eligible for correction under APRSC. Under Audit CAP, an employer and the Service enter into a closing agreement specifying the form of correction and the sanction amount.

Catch-up Contribution Provisions/Elections
Section 402(g)(8) provides a special election for certain long-term employees. Under this rule they may "catch up" on the funding of their retirement benefit by increasing their elective deferrals over the $15,000 limit for 2006 and $15,500 for 2007 (indexed for inflation thereafter). The election is available only to an employee who has completed at least 15 years of service.

Census Information
Payroll information that includes: name, address, date of birth, date of hire, gross salary, state retirement system contributions, 403(b) and 457(b) contributions, employment status and school board paid health insurance.

Cumulative Total Return
This number tells you a fund's actual performance for a certain period of time. A total return is expressed in a percentage and tells you how much money you have earned or lost on an investment over time, assuming that all dividends and capital gains are reinvested.

Distribution
A withdrawal from your retirement account.

Distributable Event
An event that must occur in order to be eligible to receive the balance of one's 403(b) account. The event must be one of the following: termination of service, death, disability, or attainment of age 59 ½.

Eligibility Failure Requirements
Unlike a qualified plan, only certain tax-exempt employers and certain ministers are eligible to maintain a 403(b) plan on behalf of eligible employees. The three key issues here are whether the:

• employer is eligible to maintain a 403(b) plan for participating employees,
• participants in a 403(b) plan perform services for the employer as employees, and
• minister is one described in § 414(e)(5)(A).

Employer Matching Contributions
The employer may make a matching contribution based upon the contribution made by the employee. The employer may match an employee's contribution up to a maximum percentage of the employee's compensation.

Employer Profit-Sharing Contributions
The employer may make a base contribution, also known as a profit-sharing contribution, that is allocated to all eligible employees regardless of whether the employee contributed to the 403(b) arrangement. The employer contribution is usually a percentage of the employee's salary. An employer profit-sharing contribution may be made by any type of employer, even if it is a tax-exempt organization that does not have "profits."

Excess Contribution
The amount by which a contribution exceeds the allowable plan limits, on which a penalty is applied.

Exclusion Allowance
Permits contributions that would otherwise be included in the employee's gross income to be made to a 403(b) plan on a pre-tax basis and, in addition, it establishes a maximum limit on such contributions.

Funding Vehicles
Funding vehicles refer to the type of investment arrangement for the assets of a 403(b) plan.
The funding vehicles for 403(b) plans are generally limited to:

• annuity contracts
• custodial accounts for regulated investment company stock
• retirement income accounts for churches
• any combination of these.

403(b) "Gatekeeper" Services^SM
Services provided by Gatekeeper that act independently as the third party plan administrator (TPA) over an employer's plan.

Lump-Sum Distribution
Withdrawing all of your money during one tax year from a retirement plan, such as a 401(k) or 403(b) retirement account. This type of withdrawal does not apply to some other retirement plans, such as 457 plans.

Pre-Tax Contribution
A pre-tax contribution is money that is deducted from an employee's pay prior to federal or state income tax deductions. This lowers the employee's taxable income for the year, thus reducing income tax liability. Due to these tax advantages, the IRS restricts when employees can withdrawal such contributions.

Rollovers
A participant must be given the option of electing a direct rollover an interest in a 403(b) arrangement to another 403(b) annuity or account or to an individual retirement account (IRA) upon a distributable event under the arrangement. A direct rollover may not be made from a 403(b) arrangement to a qualified IRC section 401(a) plan (such as, an IRC section 401(k) plan).

Salary Reduction Agreement
A valid salary reduction agreement ("SRA") must be executed between the employee and the employer. For years prior to 1996, the SRA must provide that it applies only to compensation earned after the agreement is effective, that it is legally binding and irrevocable as to amounts earned while the agreement is in effect, and that an employee may not execute more than one SRA in a year. For 1996 and later years, the SRA may apply to compensation earned but not yet paid to the participant at the time the agreement is signed as well as compensation earned after the effective date and may be revoked as to amounts earned while the agreement is in effect. Additionally, for 1996 and later, the employee may execute more than one SRA in a year.

Salary Reduction Contributions
Contributions made by an employer as a result of an agreement with an employee to take a reduction in salary or forego an increase in salary, bonuses or other wages. Salary reduction contributions are often referred to as elective deferrals because they overlap with the definition of elective deferrals under
§ 402(g) and are made pursuant to a salary reduction agreement.

Tax Sheltered Annuity
TSA or 403(b) plan is a retirement plan that allows employees of eligible employers to set aside a portion of their pay on a pre-tax basis. Earnings in a TSA are free from taxation until a participant withdraws the money.

Transfers
Participants may transfer their interest in annuities or custodial accounts to another 403(b) annuity or custodial account. However, the transferred funds must be subject to the same restrictions imposed by the original annuity or account. A 403(b) arrangement is not required to permit transfers. Transfers may be made within the 403(b) arrangement, for instance, to improve investment returns.

TVC (Tax-Sheltered Annuity Voluntary Correction) Program
The TVC Program generally allows an employer to correct any Operational, Demographic, or Eligibility Failure (as defined in Section 3 of Rev. Proc. 99-13) in its 403(b) plan that is within the jurisdiction of the EP/EO Division of the KDOs. Through TVC, an employer enters into a closing agreement with the Service who specifies the types of failures, the agreed method of correction, the applicable fee, and the effect the agreement has on potential tax liability of participants and the employer. TVC is not available if the plan or employer is Under Examination.

Qualified Vendor
An investment company that has been selected by the employer that provides information requested and necessary for plan compliance purposes. An approved qualified vendor is an investment company that has been selected by the employer and has signed the Gatekeeper approved vendor agreement, agreeing to provide to Gatekeeper the information requested and necessary for plan compliance purposes.

Universal Availability
The process of notifying all employees of their eligibility rights regarding participation the plan. Documentation is maintained to indicate that all eligible employees have been notified.

*Sources:
www.403bwise.com
www.investorwords.com
www.encarta.com

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