401k or 403b for small (but growing) nfp

[Guest spoon]

We're a startup nfp/public charity and I heard recently that we could choose between a 403b or a 401k for employees. Is this accurate and what are the benefits of one over the other?

We currently have 4 employees, all with existing 401k that could be rolled over. I don't think we can afford to provide any match funds in 2009, but we hope to do as soon as we are able. Two of the current employees are fairly savvy investors while two are passive contributors. That ratio will skew toward passive investors as we grow.

We expect to grow exponentially in the coming years, and need a plan that will easily grow/adapt as we add employees...

[Guest BruceC]

We're a startup nfp/public charity and I heard recently that we could choose between a 403b or a 401k for employees. Is this accurate and what are the benefits of one over the other?

We currently have 4 employees, all with existing 401k that could be rolled over. I don't think we can afford to provide any match funds in 2009, but we hope to do as soon as we are able. Two of the current employees are fairly savvy investors while two are passive contributors. That ratio will skew toward passive investors as we grow.

We expect to grow exponentially in the coming years, and need a plan that will easily grow/adapt as we add employees...

There is quite a bit that goes into setting up even a prototype 401(k) plan, including annual reporting, notifications and testing. This is not to say you couldn't do it yourself, but is this what you want to spend your time doing. You could have a TPA set it up and run it for you, but this could get a bit expensive for a small start up with 4 EEs.

Setting up a 403(b) would be easier, but effective 1/1/09, all plans must be in writing and comply with certain minimums. Suggest you visit a friend of mine's web site, who has the contract to update many of the ESD's in the Portland OR area at http://www.ncompliance.com/

Have you considered a SIMPLE IRA to get started. Much easier and you are under no obligation to continue them year-on-year as you would be with a qualified plan

BruceM