Choosing the right retirement plan affects your organization’s ability to attract talent and your employees’ financial futures. While 401(k) and 403(b) plans may sound similar, understanding their differences is helpful for organizational leaders.

The 401(k) plan is the most common employer-provided retirement plan. The 403(b) plan offers comparable tax benefits to employees but is available only to specific organization types.

Understanding 401(k) vs. 403(b) eligibility

The key difference between 401(k) and 403(b) plans comes down to what organizations can offer them, under federal tax laws.

401(k) plans

• Available to: Private-sector and many public-sector employees
• Offered by: For-profit companies, schools, certain government entities, non-profit organizations, religious institutions

403(b) plans

• Available to: Tax-exempt organization employees only
• Offered by: Schools, some government entities, 501(c)(3) non-profits, religious institutions

Important note: Tax-exempt organizations can offer either plan type, but private-sector companies cannot offer 403(b) accounts.

Both plans are types of employer-sponsored defined contribution  plans, which allow employees to save for retirement on a tax-deferred basis. J.P. Morgan Retirement Link provides both 401(k) and 403(b) plans to companies and organizations with plan assets between $2 million and $500 million.

Why retirement accounts matter for recruitment and retention

Quality retirement benefits directly impact an organization’s ability to attract and retain talent.

J.P. Morgan Asset Management research underscores the depth of this connection. From the employee perspective:

• 92% of participants rate retirement plan access as extremely or very important—ranking it above health insurance (90%) and paid time off (90%)
• 72% say their retirement plan is critical to their household’s financial wellness
• 85% consider retirement benefits important when deciding to stay with their employer or consider new opportunities

Employers increasingly recognize this responsibility to help prepare their employees for retirement. According to the same J.P. Morgan research, 83% of plan sponsors reported feeling a very high or somewhat high level of responsibility for their employees’ financial wellness.

“Participants are looking to their employer for this benefit,” according to Meghan Dorr, Head of Service for J.P. Morgan Retirement Link. “And a lot of employers believe it’s a really effective tool for recruiting and retention.”

Why some tax-exempt organizations stick to 403(b)s

While nonprofits can choose 401(k) plans, many continue offering 403(b)s for practical and regulatory reasons.

The 403(b) has deeper roots—established in the federal tax code in 1958, 20 years before Congress passed 401(k) into law. Many tax-exempt organizations built their benefits around 403(b) frameworks before 401(k)s became widespread, and those plans still operate today.

The regulatory landscape also varies significantly. Public-sector employers’ plans typically aren’t subject to Employee Retirement Income Security Act (ERISA) requirements. Some 501(c)(3) organizations can qualify for simplified 403(b) compliance rules under certain conditions, including limiting the plan to employee contributions.

These regulatory differences make plan selection a more strategic decision than it might initially appear, Dorr said.

Setting up the plan for employees

To build a strong retirement plan for employees, effective retirement plan design requires strategic decisions that affect every participant. Many employees are simply auto-enrolled in their company retirement plan and never modify their default investments from a target date fund aligned with their age.

Key design choices that require careful consideration include:

• Auto-enrollment features
• Default contribution rates and automatic contribution-rate increases
• Employer matching and contribution structures
• Investment options and default investment vehicles
• Vesting and profit-sharing options

JPMorgan SmartRetirement® Funds serve as the anchor investment for many plans. These target date funds use proprietary data to inform their glide path and have incorporated alternative investments for more than 20 years.

“We work closely with advisors and plan sponsors to discuss and implement these decisions uniquely with each plan,” Dorr said.

For 501(c)(3) nonprofits, plan selection involves additional regulatory considerations. Whether an organization chooses a 401(k) or 403(b) retirement plan depends on employer type, employee expectations and the competitive landscape.

“Whether they offer a 403(b) or a 401(k), we’re going to be there to collaborate strategically, to help them design a plan that supports their participants’ journey towards financial wellness,” Dorr said.

Understanding 403(b) catch-up provisions

403(b) plans can offer one unique advantage that 401(k) plans don’t: special catch-up contributions for longtime employees.

Unlike age-based catch-up contributions available in both 401(k) and 403(b) plan types, the “15-years of service catch-up” contribution is based on length of service within the organization, not the employee’s age. However, the 403(b) plan must specifically include this option in its design—it’s not automatic, and not all plan providers offer this capability due to its administrative complexity.

How the 15-years of service catch-up works

The catch-up provision involves multiple factors and requires some complex math:

• Eligibility: Employees with at least 15 years at the same organization
• Contribution limits: Up to $3,000 additional per year (but may be lower based on calculation)
• Lifetime cap: Maximum $15,000 total under this provision
• Complex calculation: Determines available capacity based on past contribution history across all employer-sponsored plans

This catch-up provision, when permitted for plan participants, requires detailed analysis—often requiring careful consultation with benefits administrators or tax professionals.