Q. In California, a significant number of public healthcare districts maintain 403(b) plans. Are they “eligible” to have them?
A. According to Internal Revenue Code Section 403(b) and the related regulations, the only employers that can maintain a 403(b) plan are public schools and Internal Revenue Code Section 501(c)(3) tax-exempt organizations. Since most healthcare districts would not be considered public schools, they must be basing their 403(b) plan sponsorship on their status as a 501(c)(3) organization. Furthermore, unless an organization is “grandfathered” under specific rules relating to certain organizations organized before Oct. 10, 1969, it generally is required to apply to the IRS for formal recognition of its tax-exempt status using Form 1023.
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