457b plan information

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Topic Author
jeremyl
Posts: 357
Joined: Sat Dec 20, 2014 7:38 am
Location: Indiana

457b plan information

Post by jeremyl »

My employer offers both a 403b & 457b plans and once they complete the move of the 457 to Voya (hold our 403b) both plans will be with Voya.

The 457b plan can only be invested in after we max the 403 or if we sell x number of sick days for cash ($50/day sold for a max of 20 days/yr).

I've inquired with our soon to be replaced CFO as to why our plan has these restrictions and is not allowing us to use the 457 for retirement contributions. She responded quickly when I asked if we could invest in the 457 but haven't heard back after asking why the plan had those restrictions

They're in the process of changing the 457 custodian so I was wondering why we would not get rid of these restrictions (same with old custodian).

Any suggestions on how to convince our district to allow us to invest in the 457 plan without the restrictions?

Thanks!
Cheryl604
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Joined: Sat May 24, 2014 12:24 pm

Re: 457b plan information

Post by Cheryl604 »

I have never heard of having to sell sick days, but some school districts in my area ask you to max the 403b before contributing to a 457. Are you in a school district, by chance? You could always look at what comparable districts (or employers?) do to try and get yours to change to match others.

Honestly, the selling of sick days back to fund the 457 is weird to me. They must have some incentive to try and get you all to reduce your overall sick leave amount.
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retiredjg
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Re: 457b plan information

Post by retiredjg »

What type of 457 plan is this?

If it is a governmental 457 and you will also have a pension, you may not wish to use the 457 at all unless you can make Roth contributions to either the 403b or the 457.

If it is a non-governmental 457, you should not use until you have a full understanding of the possible shortcomings of such a plan (which you may already know but did not mention).

Selling sick days? Never heard of that before. Interesting. Will you be paid for sick days if you leave employment without using them?
Sahara
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Re: 457b plan information

Post by Sahara »

These sound like contractual issues. My district had a 457 and "regular" employees were not provided access. Basically, it was there so that they could award large bonuses to retiring administrators since it allows a doubling of certain IRS limits. It had much lower fees as well. The provider worked with the district business administrator to educate them and encourage them to allow all employees to contribute, but they were resistant.

You might want to chat with your union rep or president.

You might also check out 403bWise https://403bwise.org/ They deal with a lot of similar issues.

Some districts do pay for unused sick days upon retirement or allow you to leverage them towards health insurance between retirement and 65, so this may be a way to avoid that. That would also be contractual.
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anon_investor
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Re: 457b plan information

Post by anon_investor »

Sahara wrote: Sat Jun 12, 2021 7:27 am ... My district had a 457 and "regular" employees were not provided access. Basically, it was there so that they could award large bonuses to retiring administrators since it allows a doubling of certain IRS limits...
Haha, that almost sounds like the reason 401k plans were created, to help execs avoid taxes...
Topic Author
jeremyl
Posts: 357
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Location: Indiana

Re: 457b plan information

Post by jeremyl »

Cheryl604 wrote: Sat Jun 12, 2021 6:45 am I have never heard of having to sell sick days, but some school districts in my area ask you to max the 403b before contributing to a 457. Are you in a school district, by chance? You could always look at what comparable districts (or employers?) do to try and get yours to change to match others.

Honestly, the selling of sick days back to fund the 457 is weird to me. They must have some incentive to try and get you all to reduce your overall sick leave amount.
They may be going that we sell so many so we take less days off???

They mentioned the part about maxing 403b them can go to 457.
Topic Author
jeremyl
Posts: 357
Joined: Sat Dec 20, 2014 7:38 am
Location: Indiana

Re: 457b plan information

Post by jeremyl »

retiredjg wrote: Sat Jun 12, 2021 7:07 am What type of 457 plan is this?

If it is a governmental 457 and you will also have a pension, you may not wish to use the 457 at all unless you can make Roth contributions to either the 403b or the 457.

If it is a non-governmental 457, you should not use until you have a full understanding of the possible shortcomings of such a plan (which you may already know but did not mention).

Selling sick days? Never heard of that before. Interesting. Will you be paid for sick days if you leave employment without using them?
As far as I understand it, it's just a regular 457b plan. Its not through the state. It's our school corporation plan. I do get a pension (teacher).

No, I will not get paid for unused sick days upon retirement.

If they want us to sell sick days to lessen a buyout or give incentive to this that can retire or retire early, this is a terrible idea. I believe that is people could invest in the 457 from the start, that would be a better incentive because teachers could build the 457 and retire when a buyout is offered it early or wanted because they can withdraw from the 457 without the 10% penalty.

I don't get the logic for restrictions. Then again, I had to push to improve our 403b.
Topic Author
jeremyl
Posts: 357
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Location: Indiana

Re: 457b plan information

Post by jeremyl »

Sahara wrote: Sat Jun 12, 2021 7:27 am These sound like contractual issues. My district had a 457 and "regular" employees were not provided access. Basically, it was there so that they could award large bonuses to retiring administrators since it allows a doubling of certain IRS limits. It had much lower fees as well. The provider worked with the district business administrator to educate them and encourage them to allow all employees to contribute, but they were resistant.

You might want to chat with your union rep or president.

You might also check out 403bWise https://403bwise.org/ They deal with a lot of similar issues.

Some districts do pay for unused sick days upon retirement or allow you to leverage them towards health insurance between retirement and 65, so this may be a way to avoid that. That would also be contractual.
You make some interesting points. It could be more for administrators. I'll contact the phone CFO again (she didn't reply when I questioned her the reasons for the restrictions). I'll reach out to the union president. Wouldn't surprise me if the union had something to do with it. They allow Voya to limit the amounts we can transfer to our self directed 403b. I transfer however much I can per year every January. I complain that it's not really a self directed account then because whatever amount is in the Voya 403b is essentially a fee since they don't allow all of it to be self directed. It's quite ridiculous.
Sahara
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Re: 457b plan information

Post by Sahara »

Yes. It’s absurd. I often wonder how in the world 403bs have yet to face the reform they so badly need. Good luck, it’s a process.
earflop
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Re: 457b plan information

Post by earflop »

Sahara wrote: Sat Jun 12, 2021 10:22 pm Yes. It’s absurd. I often wonder how in the world 403bs have yet to face the reform they so badly need.
Lobbying. There is a powerful and aggressive force to keep things the way they are.
anonenigma
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Re: 457b plan information

Post by anonenigma »

Is there a difference in costs and expense ratios between the plans, or do they mirror each other?

The restriction can't be federal, as my district permitted investment in either or both. It's probably your district's plan document, and there's probably no good reason for such a restriction. Voya can get frisky at times and push participants toward the plan that will make them the most money (like pushing their 403b instead of the District's 457b - Voya keeps the customers if the district changes plan providers down the road. Keep an eye on Voya - they don't have a nuanced understanding of the public education market).

The best argument to your district's CFO is that one doesn't know when one might need money. If circumstances require you to leave employment at age 57, for example, access to 457(b) funds without penalty would be very helpful. Assuming costs are comparable and reasonable (big assumptions, I know) it's good to have a foot in both the 403(b) and 457(b) worlds.
Topic Author
jeremyl
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Location: Indiana

Re: 457b plan information

Post by jeremyl »

anonenigma wrote: Sun Jun 13, 2021 1:28 am Is there a difference in costs and expense ratios between the plans, or do they mirror each other?

The restriction can't be federal, as my district permitted investment in either or both. It's probably your district's plan document, and there's probably no good reason for such a restriction. Voya can get frisky at times and push participants toward the plan that will make them the most money (like pushing their 403b instead of the District's 457b - Voya keeps the customers if the district changes plan providers down the road. Keep an eye on Voya - they don't have a nuanced understanding of the public education market).

The best argument to your district's CFO is that one doesn't know when one might need money. If circumstances require you to leave employment at age 57, for example, access to 457(b) funds without penalty would be very helpful. Assuming costs are comparable and reasonable (big assumptions, I know) it's good to have a foot in both the 403(b) and 457(b) worlds.
The plans are comparable. Actually, based on what I read about the 457 from the board meeting, the 457 is a little bit cheaper than the 403 (.45 basis points vs .54 basis points). Unless they have reduced the 403b fees and I don't know.

I'll stay on it because if I can invest in the 457 plan, then I'll switch to that and try to max it out so I can have a better shot at retiring early.
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retiredjg
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Re: 457b plan information

Post by retiredjg »

jeremyl wrote: Sat Jun 12, 2021 8:00 pm
retiredjg wrote: Sat Jun 12, 2021 7:07 am What type of 457 plan is this?

If it is a governmental 457 and you will also have a pension, you may not wish to use the 457 at all unless you can make Roth contributions to either the 403b or the 457.

If it is a non-governmental 457, you should not use until you have a full understanding of the possible shortcomings of such a plan (which you may already know but did not mention).

Selling sick days? Never heard of that before. Interesting. Will you be paid for sick days if you leave employment without using them?
As far as I understand it, it's just a regular 457b plan. Its not through the state. It's our school corporation plan. I do get a pension (teacher).

No, I will not get paid for unused sick days upon retirement.

If they want us to sell sick days to lessen a buyout or give incentive to this that can retire or retire early, this is a terrible idea. I believe that is people could invest in the 457 from the start, that would be a better incentive because teachers could build the 457 and retire when a buyout is offered it early or wanted because they can withdraw from the 457 without the 10% penalty.

I don't get the logic for restrictions. Then again, I had to push to improve our 403b.
I'm not sure what a "regular" 457 would be. It has to be governmental or non-governmental. They have very different rules.

In one place, you refer to "district" such as a public school district. In another place you refer to your "school corporation" and a CFO which don't sound public schoolish to me, but maybe I'm just uninformed. Is this a public school?

You didn't answer about the Roth option or not. With a pension, you do not need to save as much in tax-deferred accounts as someone without a pension. It might be a mistake for you to fill a tax-deferred 403b and also save in a tax-deferred 457. With both accounts available, it may be better to save some in tax-deferred and some in Roth.

However, unused sick days will be forfeited so it does make sense to sell unused sick days and put that money int a 457 (once you have an adequate amount of sick days accumulated). But even better if you can make Roth contributions to one of the plans.

If there is no Roth option for either plan, my suggestion would be to fill a Roth IRA each year and put the rest of your savings into 403b. Build up a cushion of sick days and sell "excess" sick days to fund the 457. The last few years before retirement, sell more sick days for the 457.

It sounds like the corporation is trying to avoid people "getting sick" and scheduling long recovery surgeries near retirement. In some places, it is common to build up sick leave and then not work the last several months while staying on the payroll. This is disruptive to the system and this sick-leave 457 plan may be an attempt to reduce that type of behavior.
Topic Author
jeremyl
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Location: Indiana

Re: 457b plan information

Post by jeremyl »

retiredjg wrote: Sun Jun 13, 2021 6:29 am
jeremyl wrote: Sat Jun 12, 2021 8:00 pm
retiredjg wrote: Sat Jun 12, 2021 7:07 am What type of 457 plan is this?

If it is a governmental 457 and you will also have a pension, you may not wish to use the 457 at all unless you can make Roth contributions to either the 403b or the 457.

If it is a non-governmental 457, you should not use until you have a full understanding of the possible shortcomings of such a plan (which you may already know but did not mention).

Selling sick days? Never heard of that before. Interesting. Will you be paid for sick days if you leave employment without using them?
As far as I understand it, it's just a regular 457b plan. Its not through the state. It's our school corporation plan. I do get a pension (teacher).

No, I will not get paid for unused sick days upon retirement.

If they want us to sell sick days to lessen a buyout or give incentive to this that can retire or retire early, this is a terrible idea. I believe that is people could invest in the 457 from the start, that would be a better incentive because teachers could build the 457 and retire when a buyout is offered it early or wanted because they can withdraw from the 457 without the 10% penalty.

I don't get the logic for restrictions. Then again, I had to push to improve our 403b.
I'm not sure what a "regular" 457 would be. It has to be governmental or non-governmental. They have very different rules.

In one place, you refer to "district" such as a public school district. In another place you refer to your "school corporation" and a CFO which don't sound public schoolish to me, but maybe I'm just uninformed. Is this a public school?

You didn't answer about the Roth option or not. With a pension, you do not need to save as much in tax-deferred accounts as someone without a pension. It might be a mistake for you to fill a tax-deferred 403b and also save in a tax-deferred 457. With both accounts available, it may be better to save some in tax-deferred and some in Roth.

However, unused sick days will be forfeited so it does make sense to sell unused sick days and put that money int a 457 (once you have an adequate amount of sick days accumulated). But even better if you can make Roth contributions to one of the plans.

If there is no Roth option for either plan, my suggestion would be to fill a Roth IRA each year and put the rest of your savings into 403b. Build up a cushion of sick days and sell "excess" sick days to fund the 457. The last few years before retirement, sell more sick days for the 457.

It sounds like the corporation is trying to avoid people "getting sick" and scheduling long recovery surgeries near retirement. In some places, it is common to build up sick leave and then not work the last several months while staying on the payroll. This is disruptive to the system and this sick-leave 457 plan may be an attempt to reduce that type of behavior.

I don't know which one for sure but I'm going to guess it's a non-governmental plan.

Sorry, I use the terms district & school corporation interchangeably. Our district has a CFO and it is a public school.

Neither the 403b nor the 457b has a Roth option. The reason I am interested in the 457b is so I could fund it more for early retirement if I can and like that the 457 doesn't have the 10% penalty before 59 1/2. This would be nice to bridge the gap between early retirement and when I could start the pension. Not to mention, the pre-tax savings now.

Right now I'm doing the employer match in the 403b, maxing our Roth IRAs, the HSA and putting extra into a taxable account. The current plan is to use taxable to bridge the gap.

I wanted to invest in the 457 instead of the 403 even though I wouldn't be able to max it but wanted the 457 advantage of not having the 10% penalty over the 403.

I'm only allowed to sell $1,000 worth of sick days per year so it doesn't really make sense at this time because it's such a small amount that it won't grow big enough or fast enough for early retirement.

I hope that all makes sense.
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retiredjg
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Re: 457b plan information

Post by retiredjg »

jeremyl wrote: Mon Jun 14, 2021 9:11 pm I don't know which one for sure but I'm going to guess it's a non-governmental plan.

Sorry, I use the terms district & school corporation interchangeably. Our district has a CFO and it is a public school.
If it is a public school, it should be a governmental 457. That's good.

I wanted to invest in the 457 instead of the 403 even though I wouldn't be able to max it but wanted the 457 advantage of not having the 10% penalty over the 403.
"Instead of the 403b" makes plenty of sense. But you said you can't use the 457 until you have filled the 403b. That means you have to use both. I think if you use both, you may end up with too much in tax-deferred accounts. If you are able to retire early, that may be an easily solved problem.

I'm only allowed to sell $1,000 worth of sick days per year so it doesn't really make sense at this time because it's such a small amount that it won't grow big enough or fast enough for early retirement.
Agreed. But I can see the benefit when you are near retirement and have a pile of sick days that you will not get paid for.
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