Advanced Marketing Forum Question

Parallel 457 and 403(b) Plans

Question:
I have a school administrator who is depositing the maximum amount in to his 403(b) through this school system here in New York. He recently read that he may also have a 457 plan through the same school system. His payroll deductions would run simultaneously and parallel for a maximum annual combined tax deferred contribution of $22,000.

Does anyone know if this is so? And are there any risks or down sides to establishing and operating a plan in this way?

Reply #1:
The 457 rules were changed with EGTRRA '01. This year, an employee can defer $11.000 into a 457(b) plan and it is not offset by any money he or she may have deferred into a 403(b) or 401(k) plan. Next year the limit increases to $12,000 and then by $1,000 per year until it reaches $15,000. After that it is indexed the same as 401(k) contributions. Unlike 401(k) plans, there is no catch-up provision, however, for those participants age 50 or older. However, for the three years prior to retirement, the employee can double their allowable contributions to the 457(b) plan.

Eric Burke Mills, JD, LLM Director - Advanced Designs Pacific Life Insurance
Phone: (800) 800-7681 x3713
Fax: (949) 219-5049
E-mail: emills@pacificlife.com

Reply #2:
It is a little known fact that EGTRRA removed the requirement that governmental 457 plans aggregate their salary deferral with any other qualified plan deferral. Thus a participant in a governmental 457 plan can defer $11,000 in 2002 and if eligible can defer $11,000 in a 401(k), or 403(b). So it seems these types of employees are reaping a benefit no other tax payers are reaping.

Commonwealth Retirement Group
Ext: 9992
E-mail: retirements@commonwealth.com

Reply #3:
This fact also seems to pertain to 457 plans for other non-profits. I have a doctor client who says that the hospital has made a 457 plan available to him in addition to his existing 403B and he can put in $11,000 to each plan.

Lorraine Hart

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