Which type of contributions can employers make under a 403(b) plan?

Employers have the flexibility to make both elective and non-elective contributions under a 403(b) plan, which is primarily designed for tax-exempt organizations like schools and certain non-profits.

Elective contributions are those made by employees through salary deferrals, where employees choose to set aside a portion of their salary pre-tax into the retirement plan. Employers can also choose to make non-elective contributions, which are contributions made by the employer regardless of whether employees contribute their own funds. This can include contributions that are made to all eligible employees.

The ability to offer both types of contributions allows organizations to design their retirement plan in a way that can incentivize employee savings while also ensuring that employees receive added support for their retirement, helping them to potentially accumulate a larger retirement fund over time. This dual contribution mechanism is an attractive feature of 403(b) plans, aligning with the goal of enhancing employee retirement readiness.