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Subject:  Re: 403b vs. 401k Date:  3/18/1998  2:38 PM
Author:  TMFPixy Number:  2248 of 88533

Greetings, PSUEngineerFool, and welcome.

You wrote:

"<<State and local governments are prohibited from offering a 401(k) plan to their employees.>>

One small correction to what you wrote. This is not entirely true. State employees in North Carolina are not limited to 403(b) plans and can invest through a 401(k) plan that the State offers. I don't know if local or other states governments are limited."

Section 401(k)(4)(b) of the Infernal (sic) Revenue Code specifies "STATE AND LOCAL GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS NOT ELIGIBLE." Those are not my caps, but the code's.

I understand that public-sector employers (i.e., state and local governments) who had a 401k plan in effect prior to July 2, 1986, are grandfathered under the Tax Reform Act of 1986 and may continue with those plans. My assumption is North Carolina had a 401k plan in place prior to that date. If not, then perhaps they have a 457 plan that can look like - but is not - a 401k plan.


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