457 Cooperative
This service provides a voluntary savings program designed to allow employees to defer salary from taxation through a district sponsored program that provides an alternative or a supplement to traditional 403(b) deferrals. A Retirement Savings Plan is set up under Section 457(b) of the Internal Revenue Code to make this possible. The plan is offered through the Region 10 ESC 457 Cooperative by means of an Interlocal Agreement with each participating district.
The district sponsors selected investments to local staff through Region 10 ESC; that is, an investment pool for educators. Educational meetings are offered to the District by salaried representatives of the company chosen to deliver plan services. No commissions are paid to any individuals or companies from the plan.
As a result of changes in tax laws effective January 1, 2002, 457(b) plans now have the same features and advantages of 403(b) and 401(k) plans. However, withdrawals from a 457(b) plan, are not subject to an IRS penalty tax [unlike 403(b), IRAs or 401(k) plans]. Additional advantages and features of the 457 Cooperative Plan are:
1. Contribution Limits:
- Allowable contribution amount is $16,500 per year up to 100% of pay.
- Individuals over age 50 can contribute an additional $5,500 for a total deferral of $22,000.
- Additional “Catch Up” limits are available.
- Contribution limits are independent of other plan limits such as 403(b) contribution amounts. (This means that an employee can now defer the maximum amounts to both a 403(b) and a 457(b) plan if their employer sponsors a 457(b) plan.)
2. Distribution:
Distributions are available upon termination of employment, death, disability, retirement or certain types of hardships. Distributions can be:
- Rolled to an IRA, 403(b), 401(k) or another 457(b) plan,
- Used to buy TRS service, or
- Taken as a cash distribution.
3. Investments:
The plan offers high quality/low cost mutual funds.
4. Penalties:
There is no 10% IRS penalty on distributions – not true of 403(b), IRA or 401(k) plans. In addition, 457 Coop plan products have no surrender charges, withdrawal penalties or other restrictions or penalties. This is not true of many 403(b) programs.
5. Loans:
Under new regulations, loans are available under rules similar to 403(b) plans.
6. Taxation:
Distributions are taxed as income at the time the funds are received as cash.
7. Protection from Liability:
The plan sponsor (i.e. the district) is a fiduciary with a 457(b) plan and responsible for the investments offered to participants. Most companies offering 457(b) plans do not protect the sponsor from fiduciary liability. The Region 10 ESC 457 Cooperative offers fiduciary protection for the district through a Registered Investment Advisor (RIA) and an Investment Advisory Committee (IAC).
Contact:
Gordon Taylor, (972) 348-1004
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