Why would I want to designate this plan as a profit sharing plan?

[Guest lbach]

I just started working at a 501©(3) organziation with a 403(B) plan. The plan document states that the plan is a profit sharing plan. Is this correct? The plan provdies for salary deferrals with an employer match.

[QDROphile]

You might want to designate it that way because that is the proper terminology under the tax code for what your plan does. Does the plan offer annuities as a payment option?

[Carol V. Calhoun]

The most common reason the employer would want to do this (assuming that the amount of contributions is fixed in the plan document) would be if the employer wanted to avoid the expenses often associated with purchasing a life annuity by providing only a lump sum distribution option.

Whether this works may be open to some question. At one point, the IRS took the position that a plan could be a profit-sharing plan only if contributions were dependent on profits. The provisions of the Internal Revenue Code dealing with qualified (401(a)) plans have now been amended to say that this is unnecessary. However, no amendment has been made to the provisions governing 403(B) plans.

However, this is a technical issue for the plan (one on which reasonable people can disagree). It is unlikely to make a significant difference to you. Very few people actually choose an annuity form of benefits under a 403(B) plan if a lump sum is available.

Obviously, these are only general statements, not legal advice, since I don't know the specific facts of you, your employer, or this plan. If you want to know specifically what this plan provides, you might ask your employer for a copy of the plan document. If you want legal advice, you'd need to speak to a lawyer.

In the interests of full disclosure, I am a lawyer myself, but I do not represent employees.