Qualified 401(k) Administrator (QKA) 1 Practice Exam 2025 - Free QKA Practice Questions and Study Guide

A 403(b) plan has distinct characteristics that differentiate it from other types of retirement plans, particularly those associated with for-profit entities like 401(k) plans.

The characteristic that a 403(b) plan is not subject to ADP (Actual Deferral Percentage) and coverage testing is significant. This means that while 401(k) plans need to meet specific testing requirements to ensure they do not disproportionately favor highly compensated employees, 403(b) plans are generally exempt from these tests, making compliance simpler for non-profit organizations.

Both employer contributions and salary reduction contributions can be a part of a 403(b) plan, and these features add to its flexibility for employees in nonprofit sectors. Moreover, the requirement for 403(b) plans to be offered by nonprofit organizations provides clarity on the types of entities that can sponsor such plans.

Overall, option C is accurate because it highlights a fundamental difference between a 403(b) plan and 401(k) plans, reinforcing the unique regulatory landscape surrounding 403(b) plans aimed at serving employees in tax-exempt organizations.