Help w/457(b) Plan

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StubbornAndFearful
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Help w/457(b) Plan

Post by StubbornAndFearful » Mon Mar 12, 2018 8:51 pm

Updated: I edited since I mistakenly wrote 403 rather than 457 in (1) below. Apologies, I'm dealing with both plans at the moment, but it's the 457 plan that it causing the headache right now.

I'm a complete novice when it comes to 457 plans. I've read several threads on these forums, as well as done reading elsewhere and I've noted that a major consideration is whether the plan is governmental or non-governmental; I'm concerned about putting my contributions at risk.

Now, my university (a large state university) offers its employees a 457(b) plan through Empower Retirement. However, the information on the plan is scarce; I've scoured the website and there is a small "highlights" document which is quite vague. In particular, I cannot determine whether the plan is governmental or non-governmental.

I've emailed and spoken by phone with two different representatives. When asked about this issue:

(1) My email contact stated that the 457(b) means it is automatically a government plan. However, my reading at the IRS site is there can be 457(b) non-governmental plans: ``Non-governmental 457(b) (“Top Hat”) plans must limit participation to groups of highly compensated employees ...", so this seems like a bogus answer.

(2) My phone contact at Empower Retirement told me he doesn't know. When I queried whether my contributions are held in trust and protected from creditors in the case of bankruptcy, he told me that would be information that I would need to consult a lawyer to get the answer to this question.

So, I'm confused at this point. Am I not asking the right question? Is my language incorrect? Or have I just been unlucky in my dealings with this company?

I have seen other posts on these forums mentioning governmental 457 plans by Empower Retirement; how did these posters figure this out? I suppose this means my plan is likely governmental, but I'd like to make absolutely sure.

Any advice would be greatly appreciated.
Last edited by StubbornAndFearful on Mon Mar 12, 2018 10:34 pm, edited 1 time in total.

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arcticpineapplecorp.
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Re: Help w/457(b) Plan

Post by arcticpineapplecorp. » Mon Mar 12, 2018 9:07 pm

here's a fun chart comparing gov/nongov 457b plans (perhaps this will help clarify or at least help you know what questions to ask):

https://www.irs.gov/retirement-plans/co ... 457b-plans

I'm in a 457b but I work for state gov, so I know it's a gov 457b (coincidentally, it's with Empower now. Used to be with Great West until a year or so ago). Years ago I worked for a non-profit and was in a 403(b) which the company eventually switched to a 401(k). Confusing stuff.

here's another fun page:

https://www.irs.gov/retirement-plans/ta ... n-mistakes

finally, here's a comparison of 403b and 457b:
https://www.fool.com/retirement/401k/20 ... -401k.aspx
https://www.investopedia.com/articles/p ... arison.asp
https://www.investor.gov/introduction-i ... 457b-plans
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

StubbornAndFearful
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Re: Help w/457(b) Plan

Post by StubbornAndFearful » Mon Mar 12, 2018 10:39 pm

Thanks, arcticpineapplecorp. The first link, in particular, is quite helpful. Perhaps I should rephrase my question to the representatives in terms of tax exempt vs governmental.

After I read your response, I realized that I had written 403 rather than 457 in item (1). I've updated to fix that; I mean 457 throughout the post.

I should also mention that the 457 is offered by Great-West Life and Annuity Insurance Company in partnership with Empower Retirement, which I also find confusing --- who exactly is offering the plan?

anonenigma
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Re: Help w/457(b) Plan

Post by anonenigma » Mon Mar 12, 2018 10:43 pm

If you work for a state university, it pretty much has to be governmental.

gostars
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Re: Help w/457(b) Plan

Post by gostars » Mon Mar 12, 2018 11:49 pm

A state university plan would be governmental. Non-governmental plans apply to 501(c) non-profit organizations, which most commonly includes entities like churches, charities, private non-profit universities (Ivy League, MIT, places like that), and private non-profit healthcare systems (often but not always with a religious affiliation).

I know that both Texas and Wisconsin use Empower for their 457b plans, which are shared by all state employees, including state universities and other state agencies like the departments of transportation, agriculture, etc.. The plans seem to be OK but not great, with moderate fees charged in a tiered structure depending on how much money you have in the account. The fund options are usually not great, with just a couple good fund options that meet BH goals and a lot of actively-managed junk. Texas's plan offers a self-directed brokerage account with Schwab at no additional charge, which can be used much like a normal Schwab brokerage account to buy whatever you'd like, including the no transaction fee mutual funds and ETFs that Schwab offers, and that's pretty nice.

MathIsMyWayr
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Re: Help w/457(b) Plan

Post by MathIsMyWayr » Mon Mar 12, 2018 11:58 pm

DW has a 457(b) through a state university. All her retirement-related matters are handled by the state along with other state employees. Her 457(b) offers a Roth option and is eligible for rollover to other retirement plans (401(k), 403(b), IRA). According to the first link by arcticpineapplecor, both are only available for governmental 457(b). OP may use these to find out whether his/her 457(b) is governmental or not. Thank you, arcticpineapplecor for the link.

TwstdSista
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Re: Help w/457(b) Plan

Post by TwstdSista » Tue Mar 13, 2018 4:30 am

StubbornAndFearful wrote:
Mon Mar 12, 2018 10:39 pm
I should also mention that the 457 is offered by Great-West Life and Annuity Insurance Company in partnership with Empower Retirement, which I also find confusing --- who exactly is offering the plan?
My understanding is that they are the same company -- I believe Great West somehow "owns" Empower Retirement.

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ruralavalon
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Re: Help w/457(b) Plan

Post by ruralavalon » Tue Mar 13, 2018 9:24 am

anonenigma wrote:
Mon Mar 12, 2018 10:43 pm
If you work for a state university, it pretty much has to be governmental.
Correct.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

anonenigma
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Re: Help w/457(b) Plan

Post by anonenigma » Tue Mar 13, 2018 10:43 am

TwstdSista wrote:
Tue Mar 13, 2018 4:30 am
StubbornAndFearful wrote:
Mon Mar 12, 2018 10:39 pm
I should also mention that the 457 is offered by Great-West Life and Annuity Insurance Company in partnership with Empower Retirement, which I also find confusing --- who exactly is offering the plan?
My understanding is that they are the same company -- I believe Great West somehow "owns" Empower Retirement.
Don't focus on the plan provider or third party administrator (tpa). Focus on investment options, expense ratios and other plan fees. Plan charge at or under .25% is very reasonable for 403b or 457b. The larger the plan, the lower the charge should be.

Mudpuppy
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Re: Help w/457(b) Plan

Post by Mudpuppy » Wed Mar 14, 2018 2:23 am

Since you work for a state university, it is highly likely that your 457(b) is a governmental 457(b) plan. One quick way to tell the difference is to look at your options when you separate from the employer. If you are allowed to roll the 457(b) plan over to an IRA, 401(k), 403(b), or governmental 457(b) plan, then it is a governmental plan. Non-governmental plans cannot roll over the assets to an IRA, 401(k), 403(b), or governmental 457(b) plans.

StubbornAndFearful
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Re: Help w/457(b) Plan

Post by StubbornAndFearful » Wed Mar 14, 2018 8:57 pm

My thanks to you all, these replies were very helpful.

I'll definitely be asking the representative about the options for rolling over the plan after separation, and I'll be paying attention to the fees (they offer Vanguard, but my guess is that there are extra fees on top of that; as I said, they are very opaque on the details). Thanks again.

il0kin
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Re: Help w/457(b) Plan

Post by il0kin » Wed Mar 14, 2018 9:12 pm

You probably don't want to roll over the plan to a trad IRA or anything like that after separation, as 457b accounts do not have a penalty for early withdrawal. They are the king of the castle as far as accounts go if you plan to retire before normal retirement age.

fposte
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Re: Help w/457(b) Plan

Post by fposte » Thu Mar 15, 2018 12:34 am

il0kin wrote:
Wed Mar 14, 2018 9:12 pm
You probably don't want to roll over the plan to a trad IRA or anything like that after separation, as 457b accounts do not have a penalty for early withdrawal. They are the king of the castle as far as accounts go if you plan to retire before normal retirement age.
What would be the advantage of withdrawing the funds from tax-advantaged space entirely rather than rolling them over?

Mudpuppy
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Re: Help w/457(b) Plan

Post by Mudpuppy » Thu Mar 15, 2018 10:44 am

fposte wrote:
Thu Mar 15, 2018 12:34 am
il0kin wrote:
Wed Mar 14, 2018 9:12 pm
You probably don't want to roll over the plan to a trad IRA or anything like that after separation, as 457b accounts do not have a penalty for early withdrawal. They are the king of the castle as far as accounts go if you plan to retire before normal retirement age.
What would be the advantage of withdrawing the funds from tax-advantaged space entirely rather than rolling them over?
A scenario will help illuminate the advantage. Let's say you get sick enough at 50 that you have to quit your job, but you can't start taking money from your pension until age 60. You can withdraw funds from a 457(b) at any age after you leave the employer and pay just the ordinary income taxes due on the withdraw. There is no 10% early withdrawal penalty on 457(b) plans like there is with 401(k) and 403(b) plans. So now you'll have the 457(b) plan funds, along with any disability insurance and SSI you might have, to live off of until you are eligible for the pension. You'll likely have to revise your retirement plans downwards (live with less), but at least you won't go broke due to the misfortune of getting sick.

Being able to withdraw from a 457(b) before age 59.5 without the 10% penalty is primarily a contingency benefit, not a fundamental benefit that everyone is planning on using. It essentially turns your 457(b) plan into a long-term emergency fund, just in case something unexpected happens to knock you out of the workforce before you are old enough to withdraw from other retirement plans without penalty. You can't anticipate if you'll get sick or get injured or so forth, but you can at least have the 457(b) as a contingency plan if the worst does happen.

And there are a few in the public sector who earn enough, or have nice enough pensions at age 55, to plan for an early retirement before age 59.5. For them, the ability to withdraw from the 457(b) plan without an early withdrawal penalty is great, although a taxable account might actually incur a lower tax bill, depending upon tax brackets.

fposte
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Re: Help w/457(b) Plan

Post by fposte » Thu Mar 15, 2018 1:12 pm

Mudpuppy wrote:
Thu Mar 15, 2018 10:44 am
fposte wrote:
Thu Mar 15, 2018 12:34 am
What would be the advantage of withdrawing the funds from tax-advantaged space entirely rather than rolling them over?
A scenario will help illuminate the advantage. Let's say you get sick enough at 50 that you have to quit your job, but you can't start taking money from your pension until age 60. You can withdraw funds from a 457(b) at any age after you leave the employer and pay just the ordinary income taxes due on the withdraw. There is no 10% early withdrawal penalty on 457(b) plans like there is with 401(k) and 403(b) plans. So now you'll have the 457(b) plan funds, along with any disability insurance and SSI you might have, to live off of until you are eligible for the pension. You'll likely have to revise your retirement plans downwards (live with less), but at least you won't go broke due to the misfortune of getting sick.

Being able to withdraw from a 457(b) before age 59.5 without the 10% penalty is primarily a contingency benefit, not a fundamental benefit that everyone is planning on using. It essentially turns your 457(b) plan into a long-term emergency fund, just in case something unexpected happens to knock you out of the workforce before you are old enough to withdraw from other retirement plans without penalty. You can't anticipate if you'll get sick or get injured or so forth, but you can at least have the 457(b) as a contingency plan if the worst does happen.

And there are a few in the public sector who earn enough, or have nice enough pensions at age 55, to plan for an early retirement before age 59.5. For them, the ability to withdraw from the 457(b) plan without an early withdrawal penalty is great, although a taxable account might actually incur a lower tax bill, depending upon tax brackets.
I'm asking because I'm one of those employees in the last paragraph :happy . If I understand correctly, it sounds like you're not so much saying that cashing out is necessarily better than rolling over but the option of cashing out is a value on its own. I've got taxable cushion so was planning to roll mine over and convert it to Roth over a few years, but I wanted to check in case I'd missed something that made cashing it out inherently advantageous.

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