403(b)/457(b) question

Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date 403(b)/457(b) question bo peep 10-03-2007  Re: 403(b)/457(b) question wyu 10-03-2007  Re: 403(b)/457(b) question Elizabeth Richa... 10-03-2007  Re: 403(b)/457(b) question wyu 10-03-2007  Re: 403(b)/457(b) question Elizabeth Richa... 10-03-2007  Re: 403(b)/457(b) question wyu 10-04-2007  Re: 403(b)/457(b) question Ron Peterson 10-03-2007  Re: 403(b)/457(b) question HW \"Skip\" Wel... 10-04-2007
Posted by bo peep on October 3, 2007, 4:24 pm I work for a large school district which offers a 403(b) defined benefit retirement plan known as "ERA". They have announced that they intend to also offer a 457(b) deferred compensation plan next year. The description of the 457(b) plan states "Participant account assets can be utilized to purchase PERA and ERA service credit on a pre-tax basis". However, my employer is not able to explain the significance of that statement. Can anyone shed some light on this? Posted by on October 3, 2007, 5:46 pm > I work for a large school district which offers a 403(b) defined > benefit retirement plan known as "ERA". They have announced that they > intend to also offer a 457(b) deferred compensation plan next year. > The description of the 457(b) plan states "Participant account assets > can be utilized to purchase PERA and ERA service credit on a pre-tax > basis". However, my employer is not able to explain the significance > of that statement. Can anyone shed some light on this? 457s are non-qualified plans for government agencies & non-profits. In a non-qualified plan, earned income is tax deferred for the employee but remains on the books of the employer until time of payout. This works for governments & non-profits because they don't pay tax on profits and hence an investment plan can grow tax-deferred under the employer umbrella. Corporations would need to offset plan growth with expenses to provide tax-deferred growth. The side effect is that this money is not protected from creditors in a bankruptcy. Government agencies don't need to worry about this but non-profits & corporations do. The benefit you then get is penalty free withdrawals before 59 1/2. I know for corporate non-qualified, there are strict rules on contribution & withdrawal schedules to avoid plan participants from making early withdrawals when company financials begin to deteriorate. 457s may or may not have the same type of rules. Posted by Elizabeth Richardson on October 3, 2007, 7:19 pm >The side effect is that this > money is not protected from creditors in a bankruptcy. Government > agencies don't need to worry about this but non-profits & corporations > do. This is outdated and completely erroneous information. Several years ago, the EGTTERA (?) update changed this for 457 plans. All monies in a 457 are now owned by the employee and are protected from creditor of the employer. The benefit you then get is penalty free withdrawals before 59 > 1/2. This provision remains. You can take withdrawals from a 457 plan at time of "separation of service" without penalty, regardless of age. Ron Peterson has it correct, that the law allows you to contribute to both plans, effectively doubling the amount you can legally defer. PERA and ERA are terms with which I'm not familiar. Your employer should clarify this for you. Elizabeth Richardson Posted by on October 3, 2007, 8:59 pm wrote: > >The side effect is that this > > money is not protected from creditors in a bankruptcy. Government > > agencies don't need to worry about this but non-profits & corporations > > do. > > This is outdated and completely erroneous information. Several years ago, > the EGTTERA (?) update changed this for 457 plans. All monies in a 457 are > now owned by the employee and are protected from creditor of the employer. Every source I've googled up say for non-governments, it's still at risk. http://en.wikipedia.org/wiki/457_plan "The Internal Revenue Code requires that money in a non-governmental 457 plan remains the property of the employer and is thus available to general creditors of the employer in legal or bankruptcy proceedings." http://www.finance.cch.com/text/c40s10d160.asp "The trust requirement that applies to state and local government 457 plans does not apply to a tax-exempt organization that is not a governmental entity. This means that those who participate in a tax- exempt organization's 457 deferred compensation plan run the risk that their employer may not have sufficient funds to pay a participant with." http://benefitsattorney.com/modules.php?name=Content&pa=showpage&pid=1&file=print "A nongovernmental plan may not be funded, except by an investment that is subject to the claims of the employer's general creditors." http://www.money-zine.com/Financial-Planning/Retirement/457-Plans/ "In addition, the money placed into these accounts is not held in a trust for the sole benefit of the employee that makes the deferral. Instead the money remains the property of the employer and therefore is available to creditors." I know the original poster works for a school district so all of the above clauses don't apply because they can always tax & print (money) their way out of insolvency so what's the point. But I clearly stated that was an issue for "non-profits & corporations". Posted by Elizabeth Richardson on October 3, 2007, 10:25 pm > > "The Internal Revenue Code requires that money in a non-governmental > 457 plan remains the property of the employer and is thus available to > general creditors of the employer in legal or bankruptcy proceedings." > The OP works for a school district, which is a governmental organization. Elizabeth Richardson Similar Threads Posted IRA question January 8, 2007, 5:00 am 529 question January 11, 2007, 4:41 pm TVM Question, please help February 8, 2007, 4:33 pm S.S. Question, Please September 1, 2007, 8:40 pm Re: Another Soc Sec question October 30, 2007, 11:29 am RMD question January 17, 2008, 1:04 pm SEP question May 16, 2008, 8:17 am annuities question(s) October 24, 2006, 8:33 am Another gifting question December 14, 2006, 9:14 am Another IRA / Keogh question December 21, 2006, 11:25 am