Understand the Plans and Who They Serve
By the end of this section you will be able to explain core distinctions among the plan types and the target markets for whom they are designed
Together, these plans offer flexible, powerful ways to help clients in the public and nonprofit sectors build a dignified retirement.
Plan Options At a Glance
403(b) is the workhorse retirement plan for educators and nonprofit employees. It offers tax-deferred or Roth savings and is governed by universal availability and ERISA (unless exempt).
403(b)(9) brings specialized benefits to clergy and church-affiliated staff—particularly the parsonage exclusion and simplified compliance environment.
457(b) is built for government and public-sector workers. It shines with flexible early withdrawal rules and can work in tandem with 403(b).
FICA Alternative allows qualified employers to reduce payroll expenses on wages paid to part-time, seasonal, or temporary (PST) employees.
403(b) Retirement Plans
Officially the Tax-Sheltered Annuity (TSA)
Established to serve employees of public schools, colleges, universities, and hospitals, certain 501(c)(3) nonprofits, and religious organizations.
It is most associated with educators, higher education staff, and nonprofit healthcare professionals and its structure mirrors a 401(k) but is exclusive to the nonprofit and education world.
Learn more:
403(b) Solutions for You Brochure
How do you see yourself in retirement?
Cat No. 101948
403(b)(9): A Specialized Option for Faith-Based Employers
403(b)(9) is a specialized version of 403(b), designed specifically for churches and certain church-related organizations. It offers all the benefits of a traditional 403(b), but with additional features and exemptions that can significantly enhance retirement outcomes for eligible employees. It offers unique benefits for ministers, including the housing allowance exclusion in retirement.
Key groups that may use 403(b)(9) include:
- Churches and church denominations
- Religious schools or ministries
- Faith-based hospitals or charities (with qualifying ties to a church)
Key advantages of 403(b)(9) over a traditional 403(b):
- Parsonage/Housing Allowance Exclusion in Retirement
One of the most powerful features of 403(b)(9) is the ability to exclude a portion of retirement income from taxable income under the minister’s housing allowance exclusion. This is not available under standard 403(b) or 457(b) plans and can significantly reduce taxable income in retirement for qualified clergy. - ERISA Exemption
403(b)(9) plans are not subject to ERISA (Employee Retirement Income Security Act), which means:- No mandatory nondiscrimination testing
- No requirement for a written plan document (though one is often maintained)
- Less burdensome reporting and disclosure requirements. This allows faith-based employers greater flexibility in plan design and administration.
- No Universal Availability Rule
Unlike standard 403(b) plans that must offer access to all eligible employees (universal availability), 403(b)(9) is exempt from this rule. Employers can be selective in offering participation, which simplifies administration and allows targeted benefits strategies.
- Simplified Administration for Small Employers
For smaller churches or ministries, the lighter administrative load and fewer regulatory requirements make 403(b)(9) an ideal fit compared to other qualified plans like 401(k)s or standard 403(b)s. - Same Tax-Deferred and Roth Contribution Benefits
403(b)(9) supports both pre-tax and Roth contributions (if offered by the plan), and eligible participants can utilize the same contribution limits and catch-up provisions as 403(b).
457(b) Retirement Plans
Designed for state and local government employees, including a wide array of public workers:
- Municipal staff
- Law enforcement
- Firefighters
- Public school administrators
- Hospital employees under government affiliation
It offers unique early withdrawal flexibility, especially for early retirees or those taking phased retirements.
Learn more:
457(b) Solutions for You Brochure
How do you see yourself in retirement?
Cat No. 102824
FICA Alternative Retirement Plans (IRC 3121)
A FICA Alternative Retirement Plan allows qualified employers to reduce payroll expenses by avoiding the 6.2% employer-matching Social Security tax on wages paid to part-time, seasonal, or temporary (PST) employees.
Hypothetical Example:*
If a district pays $1 million in wages to PST employees, implementing a FICA Alternative Plan could save the employer $62,000 annually.
How the plan works:
Eligible employers establish a plan that replaces Social Security contributions with a 7.5% pre-tax employee contribution to a qualified retirement account. This deduction comes from gross wages and is typically structured as a 457 plan.
- Employees’ take-home pay remains largely unchanged
- Medicare contributions (1.45%) still apply
- There is no early withdrawal penalty (unlike traditional retirement plans) if a qualifying event occurs before age 59½
Benefits for Employers:
- Immediate savings: The 6.2% Social Security match is eliminated for eligible PST employees
- No additional administrative burden once the plan is in place
- Ongoing Medicare (1.45%) contributions are still required
Benefits for Employees
- Replace after-tax 6.2% Social Security deductions with a 7.5% pre-tax retirement contribution
- For employees in a 15% or higher tax bracket, this switch may provide comparable or better net pay
- Contributions and earnings grow tax-deferred, helping accounts potentially grow faster over time
- Accounts are:
- 100% vested immediately
- Earning current interest rates
- Penalty-free for withdrawals upon employment termination
A Word on Dual-Plan Eligibility
It’s important to note that employees can have access to multiple plan types. For example:
A public school district employee may be eligible to participate in both a 403(b) and a 457(b) plan offered by the district.
A schoolteacher employed by a religious school may be eligible for both 403(b) and 403(b)(9), depending on the structure of the organization.
A clergy member working for a city hospital with a faith-based charter might qualify for both 403(b)(9) and 457(b) plan participation.
As a financial professional, it’s essential to evaluate which plan (or combination of plans) offers the best tax advantages, contribution capacity, and retirement income strategy for each client. Employees with access to more than one plan have an opportunity for doubling contribution limits and diversifying tax strategies. Highlight this benefit to clients seeking to aggressively save for retirement or catch up in their final working years.
Plug In to Industry Resources
Additional Tools & Resources are available on the Agent Portal.
To go there directly:
Don’t know who to contact?
Send an email to the team at RetirementServices1@NationalLife.com
or call 866-243-7174
Source: IRS 2025
* This hypothetical example is used for illustrative purposes only. Actual results will vary.
** Please ensure you follow state and National Life Group rules regarding client testimonials and how/where they may be used.
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TC8049010(0625)3 | Cat No 108134(0625)