Why a 457 Plan may be the Right Choice for Your District

1. Why a 457 Plan may be the Right Choice for Your District Dave Zahller Regional Vice President Security Benefit 38-10710-01 2013/03/25

2. Introductions • Dave Zahller • Regional Vice President • Security Benefit

3. Agenda • 457 Plans • 457 and 403(b) Plans: Similarities/Differences • Plan Administration • Roth Options

4. 457 Plans 457 and 403(b) Plans: Similarities/Differences Plan Administration Roth Options

5. 457 PlansDefining the 457 Marketplace • Political Subdivisions, “Governmental” • States • Cities • Counties • Special Districts • School Districts

6. 457 PlansWhat is a 457 Plan? • A voluntary, supplemental retirement plan available on a pre-tax basis through payroll deduction • Like your 403(b) plan, is exempt from ERISA

7. 457 PlansHistory • Started by private letter ruling • 1973 - Lompoc, CA • Section 457(b) implemented 01/01/1979 • EGTRRA of 2001 repealed the coordination of 403(b) and 457 Plan Salary Deferrals making it possible for school districts to implement 457 plans in addition to their 403(b) programs • Known as “deferred compensation” because the employer retains ownership of the assets until distribution • Plan assets held in trust for exclusive benefit of employee or beneficiaries

8. 457 PlansFeatures and Benefits • Typically a “group” plan structure • Unlike “qualified” plans, a 457 plan has no age requirements or penalties for distribution • May have a loan provision • Assets available at • Retirement • Termination of employment • Financial Hardship • Distributions taxed as “ordinary income” in the year of receipt Source: http://www.irs.gov/Retirement-Plans/IRC-457(b)-Deferred-Compensation-Plans

9. 457 PlansFeatures and Benefits • Schools districts may offer both a 457(b) and a 403(b) • Offering both allows employees to defer maximum amounts into each plan • Defer up to $17,500 into a 457(b) and up to $17,500 into a 403(b) for a total of $35,000 (in 2013) • Age 50 catch-up is an additional $5,500 for a total of $44,000 (in 2013) • Other catch-up provisions may be available • Source: http://www.irs.gov/Retirement-Plans/IRC-457(b)-Deferred-Compensation-Plans

10. 457 Plans 457 and 403(b) Plans: Similarities/Differences Plan Administration 457 and 403(b) Roth

11. 457 and 403(b) PlansPlan Similarities • A written Plan Document is required • 403(b) written plan is required - dated (or amended) on or after January 1, 2009 • Contributions are made with (employee or employer) pre-tax dollars through payroll deduction • Contribution limits are the same • 2013 limit is $17,500 or 100% of salary • Age 50+ catch-up provision allows an additional $5,500 • Loan provision available (by plan authorization) • Roth provisions were made available January 1, 2011 (by plan authorization) • Employee must begin taking minimum distributions in the year that they reaches age 70 ½ unless still employed

12. 457 and 403(b) PlansPlan Structure 457 plans are typically “group” plans • Employer retains control of provider(s) selection and may change providers at will, transferring plan assets to new provider • Annuities and mutual funds (custodial accounts) are eligible 403(b) accounts have traditionally been individual contracts between the employee and provider • No employer involvement in supervising plan prior to regulation changes in 2009 • Annuities and mutual funds (custodial accounts) are eligible • Some school districts are adopting a group 403(b) structure as a result of the 2009 regulations

13. 457 and 403(b) PlansPlan Differences • “Special” catch-up options • 457(b) catch-up may be used three years before “normal retirement age” as specified by the plan • All unused amounts in prior years of eligibility, up to an additional $16,500 per year for three consecutive years • 403(b) 15 years of service catch-up maximum is $3,000 per year to a life-time maximum of $15,000

14. 457 and 403(b) PlansPlan Differences • Hardship and emergency access to account assets • 457(b) terminology: “unforeseeable emergency” • Taxable if pre-tax dollars • Clearly defined IRS guidelines • 403(b) terminology: “hardship withdrawal” • Allowed only when all other resources have been exhausted • May be subject to a 10% IRS early withdrawal penalty • Taxable if pre-tax dollars

15. 457 Plans 457 and 403(b) Plans: Similarities/Differences Plan Administration 457 and 403(b) Roth

16. Plan AdministrationImplementing a 457 plan • Pass a resolution establishing a 457(b) plan • Appoint a “Plan Administrator” • Establish plan administration procedures or delegate plan administration to a vendor providing investments • (Best practice) Educate your employees

17. Plan AdministrationWritten Plan Document • Document must contain all terms and conditions for eligibility, benefits, limits, the contract’s availability under the plan, and time and form under which benefit distributions would be made • Any changes and amendments to the plan or the way the plan is operated should be communicated to all participants • Plan Documents are typically provided and kept up to date by the investment provider

18. Plan AdministrationEducating Employees • Others ways of educating employees on the benefits of participating in a 457 plan • Work with provider(s) to structure quarterly seminars on a range of retirement planning topics • Benefit fairs (providers participate) • Provide individual packets of information • Open enrollment (providers on-site) • District newsletters • Email • Website links

19. Plan AdministrationParticipation • What is your district’s participation rate? • Prior to new regs (2008) typical rate was 33% • Average rate now 20% • Economy • Employees with orphaned plans didn’t choose to continue with approved providers • Why is a higher participation rate important? • Indicates compliance with Universal Availability rule • “Best practices” fiduciary responsibility is illustrated • Increased participation correlates directly to the ability of employees to retire on-time, reducing costs to district

20. Plan AdministrationProviders • Controlling providers benefits your employees • Limit the number of advisors that have access to the district and its’ employees • Limit a maximum of three reps per provider • District policy should grant access to all sites as approved by administration

21. 457 PlansPlan Administration 457 and 403(b) Plans: Similarities/Differences 457 and 403(b) Roth

22. 457 and 403(b) Roth457 Roth • Effective January 1, 2011 Roth contributions are allowed within 457 plans • Must be adopted by the Governing Board • Plan Document must be amended to include • 457 Roth contributions are made after-tax • 457 Roth earnings are tax-deferred • Upon severance from employment, 457 Roth distributions may be tax-free

23. Summary • School districts can offer a 457 plan exclusively or in tandem with a 403(b) plan • 457 Plan withdrawals are available to any time after severance from employment are never subject to the IRS 10% premature distribution • If participants change jobs they have the flexibility to move their accounts into their new employers retirement plan or into an IRA • ROTH option is allowed

24. Summary • Employees can defer the maximum elective deferral limits into both a 403 and 457 including catch up amounts • Adding a 457 option is an attractive recruiting tool for all potential employees • 457 plans have no universal availability requirements, which is very different from a 403(b) plan. This can help reduce your plan administration burden • Out of the IRS Spotlight

25. Questions?

26. Contact • Dave Zahller • 866.573.044 • dave.zahller@securitybenefit.com Services offered through Security Distributors, Inc., a subsidiary of Security Benefit Corporation (Security Benefit). Security Benefit is indirectly controlled by Guggenheim Partners, LLC.