What type of plan is a 403(b) classified as?

A 403(b) plan is classified as a defined contribution plan specifically designed for employees of nonprofit organizations, public schools, and certain tax-exempt organizations. This type of plan allows employees to contribute a portion of their salary on a pre-tax basis, which helps in saving for retirement. The contributions made to a 403(b) plan, as well as any earnings on those contributions, are tax-deferred until withdrawal, providing an incentive for long-term savings.

In contrast to defined benefit plans, which guarantee a specific payout at retirement based on a formula considering salary and years of service, a defined contribution plan like the 403(b) does not promise a specific amount at retirement. Instead, the final amount available upon withdrawal depends on the contributions made and the investment performance over time. This differentiates the 403(b) from other options such as short-term investment plans, which focus on short-term gains rather than long-term retirement savings, or corporate pension plans, which are typically associated with for-profit organizations rather than nonprofits.