9/15/15 403(b) & 457(b) Plans 1
PPT-00138 (1/15)
Horace Mann
Founded by Educators for Educators®
•  We are the nation’s only multiline insurance company focusing
on educators and their families.
•  With more than $8 billion in assets, we offer a full line of
personal insurance and retirement planning products.
•  We serve more than 4,000 school districts nationally, including
nearly one million clients.
•  We’re dedicated to helping educators both inside and outside
the classroom.
For institutional use only
PPT-00144 (10-14)
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1 9/15/15 What we’ll cover today
403(b) and 457(b) plans
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History and background
Employer responsibilities
What are they
Who’s eligible
Why participate
Contribution limits and catch-up provisions
Distributions
For institutional use only
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Please note
•  This communication is not intended to be legal or tax advice. You should
consult your own tax and legal advisors regarding the eligibility to offer
403(b) and 457(b) plans, the design and ongoing administration of your
plan, and compliance of your plan with the Internal Revenue Code and
IRS regulations.
•  While employees can receive the benefits of tax deferral in any product
used in a tax-qualified retirement plan, an annuity offers additional
benefits, such as a death benefit and the ability to receive a lifetime
income. In order to offer these benefits, there are additional charges and
fees included in the annuity.
For institutional use only
PPT-00144 (10-14)
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2 9/15/15 History and Background
403(b) plans
•  Available since 1961
•  Available to:
457(b) plans
•  Available since 1978
•  Available to:
–  Public school employees
–  Local and state government
employees
–  Firefighters
–  Police
–  Employees of non-profit
organizations
–  Public school
employees
–  Church employees
–  Employees of nonprofit organizations
For institutional use only
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PPT-00144 (10-14)
Employer responsibilities
•  Employer must monitor the plan with regard to the following:
–  Plan documents
–  Eligibility
–  Contributions
–  Catch-up contributions
–  Distributions
•  Loans
•  Hardship
•  Severance from employment with the employer
–  Maintain compliance with universal availability and meaningful
notice (for 403(b) plans only)
For institutional use only
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3 9/15/15 What is a 403(b) and 457(b)?
403(b)
457(b)
•  Pre-tax (tax deferred)
•  Designed for retirement
•  Taxes are payable when amounts
withdrawn
•  Can only withdraw based upon
specific conditions
•  Must be offered to all employees
•  Pre-tax (tax deferred)
•  Designed for retirement
•  Taxes are payable when amounts
withdrawn
•  Can only withdraw based upon
specific conditions
•  Can be offered to selected
employees
For institutional use only
PPT-00144 (10-14)
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Why participate?
Many people experience substantial changes in their income
and expenses both when they retire and also in the following
years. These programs can help better prepare for retirement.
403(b)
457(b)
•  Pre-tax salary contributions
reduce current taxable income
•  Contributions and earnings
grow tax-deferred
•  Convenient payroll reduction
•  Pre-tax salary contributions
reduce current taxable income
•  Contributions and earnings grow
tax-deferred
•  Convenient payroll reduction
•  Ability to contribute to a
403(b) as well (if offered by
employer)
For institutional use only
PPT-00144 (10-14)
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4 9/15/15 How much can I contribute?
403(b)
•  Generally, the lesser of:
•  100% of includible compensation, or
•  $17,500 (for 2014)
•  $18,000 (for 2015)
•  Your district may offer:
457(b)
•  Employer and employee contributions up to:
• $17,500 (for 2014)
• $18,000 (for 2015)
•  Your district may offer:
2014
•  $20,500 if eligible for 15 years of
service catch-up
•  $23,000 if eligible for age 50 or older
catch-up
2015
•  $21,000 if eligible for 15 years of
service catch-up
•  $24,000 if eligible for age 50 or older
catch-up
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Additional $5,500 for participants age 50 or
over in 2014 or $6,000 in 2015
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Special 457 catch-up provision, allowing
participant 3 years prior to normal retirement
age to contribute the lesser of:
–  Twice the annual limit:
- $35,000 (for 2014)
- $36,000 (for 2015), or
–  The basic annual limit plus the
underutilized basic limit in prior years
(only allowed if not using age 50
catch up)
For institutional use only
PPT-00144 (10-14)
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Contribution example
In 2014 an individual could
contribute as much as:
In 2015 an individual could
contribute as much as:
–  $17,500 to a 457(b)
–  $17,500 to a 403(b)
–  $5,500 of age 50 catch-up
to a 457(b) plan
–  $5,500 of age 50 catch-up
to a 403(b)
- $18,000 to a 457(b)
- $18,000 to a 403(b)
- $6,000 of age 50 catch-up
to a 457(b) plan
- $6,000 of age 50 catch-up
to a 403(b)
Total deferral = $46,000
Total deferral = $48,000
For institutional use only
PPT-00144 (10-14)
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5 9/15/15 Distributions/withdrawals
403(b)
Reaching age 59½*
Severed from employment
Become disabled
Die
Encounter certain hardships*
Loans*
10% penalty tax for early
withdrawal (before age 59½)
•  Required minimum distributions
upon reaching age 70½
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457(b)
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*if allowed by the plan
Reaching age 70½
Severed from employment
Die
Unforeseeable emergency*
Loans*
Required minimum distributions upon
reaching age 70½
*if allowed by the plan
For institutional use only
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Advantages of a 457(b) plan
•  For employer
–  Provide eligibility to selected employees (e.g. school business
officials, principals, administration)
•  For the employee
–  No IRS 10% penalty tax if the employee retires early
–  Can fully fund both 403(b) and 457(b) plans
For institutional use only
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6 9/15/15 For institutional use only
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Implementing Best Practices
to Stay Compliant with
403(b) Universal Availability
The information being presented is not intended to be legal or tax advice. You should consult your own tax and legal advisors
regarding the eligibility to offer a 403(b) plan, the design and ongoing administration of your plan, and compliance of your plan
with the Internal Revenue Code and IRS regulations.
PPT-00140
7 9/15/15 Universal Availability
The rule for eligibility to contribute to a 403(b) plan is known
as universal availability. It stipulates that if a Plan Sponsor
permits one employee to participate in a 403(b) plan, the
Sponsor must offer a “meaningful” opportunity to all
employees to participate.
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Universal Availability Exceptions
•  Employees who normally work less than 20 hours a week/1,000 hours
per year.
ü  Employers must maintain hourly records as proof of this exception.
•  Non-resident alien
•  Student workers
•  Employees eligible to participate by salary reduction in other deferral
plans sponsored by the employer
•  Employees who do not wish to contribute at least $200 per year into a
403(b) plan.
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8 9/15/15 Meaningful Notice
This formal notification is required to be made by the Plan Sponsor a
minimum of once a year.
•  Meaningful notice communication through:
ü  Regular mail, internal mail distribution method or email distribution so long
as all eligible employees receive the notice.
•  The notice should include:
ü  Eligibility requirements (i.e. who can and cannot participate in the plan)
ü  Enrollment procedures
ü  Types of employee contributions(pre-tax, Roth [if available] and catch-up
contributions)
ü  How and when contribution amounts can be changed
ü  Information on approved product providers in the plan and TPA support.
PPT-00140
Best Practices
•  While the IRS requires meaningful notice once a year to
insure that all eligible employees are reached, it is best to
offer multiple means of communication.
•  Consider:
ü  New employee orientation materials
ü  Policy or employee manuals
ü  Payroll stuffers
ü  Website materials
ü  Benefits fair
ü  Educational seminars offered by approved vendors in the plan
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