double your retirement savings opportunities: section 457 plans for public school employees...

Double Your Double Your Retirement Savings Retirement Savings

Opportunities:Opportunities:Section 457 Plans for Public Section 457 Plans for Public

School EmployeesSchool EmployeesPresented March 14, 2002Presented March 14, 2002

PASBO 47PASBO 47thth Annual Conference Annual Conference

Securities offered through Lincoln Investment Planning, Inc., Advisory Services and Registered Investment AdvisorMember NASD/SIPC

Jerry Wozniak, CFP™Jerry Wozniak, CFP™David Blask, CPCDavid Blask, CPC

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

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


Catch-up Contributions for Individuals age 50 or older

2002 $1,0002003 $2,0002004 $3,0002005 $4,0002006 $5,000


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


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.

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

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

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

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

What Are The Steps Needed To Install A 457 Plan

Adopt Plan Documents

Get Board Approval

Structure payroll system for handling 457 contributions

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

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

Lincoln Investment Lincoln Investment Planning, Inc. & School Planning, Inc. & School District AdministratorsDistrict 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