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ERISA 403(b) or 401(k)?

403(b) Plans

Which is better? It depends! That’s the verdict from an industry insider who compared and contrasted the two in a June 29 session at the 2021 NTSA Summit, the annual conference of the National Tax Deferred Savings Association. 

“A vexing issue,” said Mark Heisler, CEO of ADMIN Partners, LLC, of the question. Not only that, he said, it is “probably the number one question he gets.” And the answer, he said, “very much depends” on the particular client involved. 


There are some important similarities, Heisler said. Both allow pre-tax and Roth elective deferrals; the IRS sets annual contribution limits for each; there are safe harbor designs; auto-enrollment is allowed; vesting is allowed; and employers can match employee contributions to both. And, in answer to a question, Heisler added that around 50% of employers offering an ERISA 403(b) plan match employee contributions. 

Key Differences

Heinsler discussed a variety of key differences between ERISA 403(b)s and 401(k)s:




25-year service catch-up



Hardship distributions 

Deferral only

Permitted from all sources

Post-severance employer contributions



Excise tax or Form 5500 filing due to late deferrals



Nondiscrimination testing

Elective deferral contributions not subject to nondiscrimination testing

ADP and ACP nondiscrimination tests required 

New long-term part-time employee rule

Not applicable


Additional Distinctions

Heinsler cited other distinctions between the two. 

Custodial arrangements. For 403(b)s, the employer does not own the contract and cannot designate movement of funds between recordkeepers; individuals must make those designations. But that is not true regarding 401(k) plans, Heinsler said. 

Service providers. Virtually all TPAs and recordkeepers support 401(k) plans, Heinsler said; however, “only a select universe” of them support 403(b)s. 

Heinsler noted that it can be challenging to find good support for 403(b)s. He suggested some questions to ask a potential service provider: 

  • What percentage of their business is devoted to 403(b)s?
  • Do they have a 403(b) pre-approved document?
  • Can they support legacy provider assets for compliance and consolidated reporting if necessary?

He added that if a TPA or recordkeeper automatically steers one to a 401(k), “that’s a signal they have limited experience with 403(b) plans.” 

Key Questions

Heinsler suggested some questions to ask a client that is considering whether to establish an ERISA 403(b) or a 401(k) plan:

  • How long has the organization been in existence? 
  • What is the tenure of senior leadership?
  • Does the organization have HCEs? If yes, how many? 
  • Does the organization plan to make an employer contribution?
  • Does the organizations have ideas for how they wish to structure ER contributions? 
  • What are the budget requirements?

Heinsler also had suggestions for factors a professional should consider before making a recommendation to a client:

  • Are the additional features available in 403(b) plan designs applicable to the organization? 
  • Does the organization plan to make employer contribution now or later? 
  • Do you have the right partners at the ready should you recommend a 403(b) plan?

“Doing your homework is very much the most important thing you can do,” said Heisler.