Double Your Retirement Savings Opportunities: Section 457 Plans for Public School Employees

1
Double Your Retirement Savings OpportunitiesSect
ion 457 Plans for Public School Employees
Presented March 14, 2002 PASBO 47th Annual
Conference
Jerry Wozniak, CFP David Blask, CPC
Securities offered through Lincoln Investment
Planning, Inc., Advisory Services and Registered
Investment Advisor Member NASD/SIPC

2
New Savings Opportunities

• Prior to January 2002
• 457 Plan contributions limited to 8,500
• 457 money could not be rolled to an IRA or
  elsewhere upon separation from service. Only
  choices were
• Take cash and pay tax
• Leave it where it was
• If even one dollar was contributed to a 457 plan,
  your 403(b) limit became 8,500

3
New Savings Opportunities

• Effective After 12/31/2001

• Contributions limited to the lesser of 100 of
  compensation or
• 11,000 in 2002
• 12,000 in 2003
• 13,000 in 2004
• 14,000 in 2005
• 15,000 in 2006
•  
• Indexed in 500 increments thereafter

4
New Savings Opportunities

• Effective After 12/31/2001

• Catch-up Contributions for Individuals age 50 or
  older
• 2002 1,000 2003 2,000 2004 3,000
  2005 4,000 2006 5,000

5
New Savings Opportunities

• Effective After 12/31/2001

• Distributions from 457 plans now eligible to be
  rolled to an IRA or plan of subsequent employer
  after separation from service.
• Applies to governmental 457 plans only

6
New Savings Opportunities

• Effective After 12/31/2001

• Contributions to a 403(b) are not reduced by 457
  plan contributions.
• Public school employees can contribute to both
  plans.
• Contributions made within three years of the
  Normal Retirement Date may double the amount
  contributed
• Dependent upon the number of years in the plan
  and prior contributions.

7
457 /403(b) Example

• Example 2002 403(b) 457
• 11,000 11,000
• 1,000 if over age 49
• 3,000 (maybe)
• 15,000 11,000 26,000
• Example 2006
• 15,000 15,000
• 5,000 if over age 49
• 3,000 (maybe)
• 23,000 15,000 38,000

May be doubled under certain circumstances
8
How Does a 457 Plan Differ From 403(b)?

• The 457 plan must be adopted by the employer.
  Plan is usually governed by the plan document.
• Hardship withdrawals are more difficult to
  obtain. In-service distributions only for
  Unforeseeable Hardships which does not include
  college or buying a home
• Loans usually not allowed

9
457(b) and 403(b)

• Reasons To Use A 403(b)
• 403(b)s have loan provisions 457(b)s do not
• 403(b)s do not require a plan document
  457(b)s do
• Higher limit and catch-up provision
• Can be used in Enhanced format
• Easy to implement traditionally already in
  place

10
457(b) and 403(b)

• Reasons To Use A 457(b)
• No 10 excise tax upon withdrawals
• When combined with a 403(b) allows for sheltering
  of larger sums of money

11
What Are The Steps Needed To Install A 457 Plan

• Adopt Plan Documents
• Get Board Approval
• Structure payroll system for handling 457
  contributions

12
How Will The Payroll Department Implement This
Plan

• Not necessary to create a new payroll slot
• May be included on current slot but separately
  noted
• Reporting on W-2

13
Why You Need To Know About 457

• Employees will be asking for them
• They may become a negotiation item
• If your district offers bonuses or incentives,
  they will become a priority item
• Higher compensated employees may ask for them
• They may benefit you personally

14
Lincoln Investment Planning, Inc. School
District Administrators

• Planning Together To Help You Retire Well
• Lincoln Investment Planning, Inc., Broker/Dealer,
  Registered Investment Advisor Member NASD/SIPC
• One Station Square, The Landmarks Building, Suite
  210, Pittsburgh, PA 15219 412-565-7000