joel

So I guess the majority take the lump-sum settlement even though it is subject to immediate taxation.

During the payout period does the account balance remain subject to the claims of the employer's creditors?

The assets are only subject to the claims of creditors during the accumulation period. Upon severance of employment the participant may roll the money over to an insurance company for the purchase of an immmediate payout annuity. There is no rollover option for a 457b plan of a non profit employer. Assets can only be transferred tax free to another non profit 457b plan. Only assets in a government 457b plan can be rolled over tax free to an IRA which can purchase an annuity. So what are the payout options upon retiring from a non profit employer?

The assets are only subject to the claims of creditors during the accumulation period. Upon severance of employment the participant may roll the money over to an insurance company for the purchase of an immmediate payout annuity.

30 Rock: Thank you for your response. However you misinterpreted my question so your response is not on point. Here is the answer to my orginal question: Firstly, only gains on the Roth investment are taxable. Income tax and the 10 percent penalty tax would be due on the withdrawal of gains provided those gains are not a qualified distribution; i.e., were not in the Roth 457(b) account for the later of at least 5 years or the attainment of age 59-1/2.

I would like to rephrase my question: A Roth 457(b) participant closes out his account. He withdraws his entire $5000 balance. The account has existed for less than 5 years so the gains of $1000 is taxable at ordinary rates. Is the $1000 also subject to the 10 percent penalty tax?

Did you forget to write "Roth" before "457(b) contributions" in your first sentence? I just want to fully understand your position? Thanks, Joel

The 10 percent penalty tax/age 59 1/2 rule does not apply to withdrawals made from a pre-tax 457(b) Plan. Does the rule apply to a Roth 457(b) account?

I have seen descriptions of IRA annuity products that state that the beneficiary payout will be paid only in the form of periodic payments. How does this beneficiary payout scheme affect the payout options available to the owner at age 70.5?

This might accomplish the goal: The 69 year old purchases an annuity. The payout option will be a lifetime income for the 69 year old. Upon the death of the 69 year old the 44 year old survivor will also get a lifetime income. What are the rates for this?

Only two ways: 1. Set up a conduit trust that receives each RMD from the IRA and then passes the payment to the beneficiary of the trust. RMDs are based on life expectancy of the trust beneficiary. This requires a lawyer and someone who will act as trustee which costs $. 2. Purchase an annuity policy that pays the MRD as the only distribution option after death of the owner. You have to pay for the cost of the annuity and the agent's commission. Re: 2 Q.: I assume this requires that the owner rollover the acccount balance to an insurer. Is this correct?

Facts: 69 year old owner of an IRA 44 year old is sole beneficiary. HOW DOES THE IRA OWNER ASSURE THAT THE BENEFICIARY TAKE WITHDRAWALS BASED ON LIFE EXPECTANCY?

Once the accountholder attains age 59-1/2 the problem ceases to exist. No?

Peter, Now that you know the state do you have any additional comments?

JOEL L. FRANK PO Box 148 6 Trotter Place Marlboro, New Jersey 07746-0148 732-536-9472 rollover@optonline.net OUTCH!---THOSE BASIS POINTS AND OTHER HURTS March 2010 A basis point is one hundredth of one percent (0.0001). This is how the fees charged by our investment managers are expressed. The lower our basis points the more money in our accounts when we retire. The Federal Thrift Savings Plan charges 2.8 basis points or 0.028 percent to manage the retirement savings of federal employees. This equates to a $0.28 fee for each $1,000.00 of account value. Do you have any idea how hurtful high fees are to the growth of an investment? Example: For 40 years Bob and Rob contribute to the New Jersey State Employees Deferred Compensation Plan (NJSEDCP). Their first year salary is $30,000 with annual increases of 3 percent. 10 percent of their salary is invested in the Plan each year. They each earn 8 percent on their retirement-investment. At the end of 40 years Bob's account is worth $1.1 million while Rob's account is worth $700,000. Why the difference? Bob invested his money in the 4 State-managed funds at a cost of 8 basis points or $0.80 per $1,000.00 of account value while Rob invested his money with Prudential at a cost of 220 basis points or $22.00 per $1,000.00 of account value. For the first 25 years of its existence, the New Jersey Deferred Compensation Board got it all right by offering only de minimis cost investment funds. This all changed on January 2, 2006 when each of the 4 State-managed funds was summarily closed to ongoing deposits; replaced with 23, commissioned based, Prudential funds. Additionally, Prudential was hired to handle two key Plan functions: (1) Plan Administration, replacing the Division of Pensions and Benefits which was the Plan’s only Administrator during its first 25 years; (2) Primary Investment Provider, replacing the New Jersey Division of Investment which was the Plan’s sole Investment Provider during the Plan’s first 25 years. The sole intent of these fundamental changes was to dupe the employee-investor into buying the commissioned based Prudential funds. Recognizing that it is the employee-investor, not the employer, that makes the investment, pays all of the associated costs of acquiring and maintaining the investment and assumes all of the investment risk, it is the height of arrogance for the State of New Jersey, as employer and Plan Sponsor, to sanction commissioned based investment funds. Why, after 25 years of administering a de minimis cost plan, did the State decide to place Prudential’s bottom line ahead of its employees’? Why, after 25 years of administering a de minimis cost plan, did the State decide to give Prudential a living on the back of its employees? It is shocking that at a time when fees paid by the employee-investor are under intense scrutiny, the Deferred Compensation Board would have the temerity to replace the 4 de minimis cost options with 23 commissioned based funds. By so doing, the State Investment Council has breached its fiduciary duties. If your objective was to increase the number of investment funds all additional ones could have been of the de minimis cost variety. No? See: 1. The Federal Thrift Savings Plan 2. The Investment Plan of the Florida Retirement System 3. The Deferred Compensation Plan of the City of New York 4. The New York State Deferred Compensation Plan 5. State of Connecticut Defined Contribution Plans 6. Commonwealth of Pennsylvania Deferred Compensation Program =============================================================== RECOMMENDATIONS 1.: All Defined Contribution retirement plans to which employees of state, county and municipal governments, including school districts, invest in should offer only de minimis cost investment options. This includes primary Defined Contribution retirement plans funded by both employer and employee contributions (ABP and the DCRP) as well as supplemental retirement plans funded by only employee contributions (457(b) and 403(b)). On the state level the plans are: a. Supplemental Annuity Collective Trust (SACT) b. Alternate Benefit Program (ABP) c. New Jersey State Employees Deferred Compensation Plan (NJSEDCP) d. Defined Contribution Retirement Program (DCRP) On the county level there are 21 457(b) plans. On the municipal level there are 565 457(b) plans. On the school district level there are 565 457(b) plans and 565 403(b) plans. 2.: Eligibility to participate in the New Jersey State Employees Deferred Compensation Plan should be expanded to include county and municipal government employees, including those of school districts. Just like there is a single State-administered Defined Benefit retirement system for all of the State’s public employees there should be a single State-administered Deferred Compensation 457(b) Plan. It is utter non-sense for 21 counties, 565 municipalities and 565 school districts to administer their own 457(b) plan. 3.: The SACT must adopt, at long last, a diversified investment line-up. Since its inception, in 1963, the SACT has been a plan to avoid. Having said that, the SACT is the State-administered 403(b) Plan for employees of public higher education institutions and public school districts. The Trust began in 1963 with one investment choice, a common stock fund. After nearly 50 years of continuous operation the Trust still offers only one investment choice, a common stock fund. Such gross negligence represents a severe breach of fiduciary responsibility on the part of the New Jersey State Investment Council and is the sole reason why each of the 565 school districts sponsor their own commissioned based 403(b) plan. While it is utter non-sense for each of the 565 school districts to administer their own 403(b) plan, until and unless the Trustees adopt a diversified investment menu, public school personnel will continue to avoid the SACT. They will, unfortunately, also continue to be victimized and duped by commissioned based 403(b) investments that have been, since 1963, sanctioned by their employing school districts. ============================================================== OF NOTE 1. This Paper applies, with equal vigor, to the 21 counties, 565 municipalities and 565 school districts that sanction the sale, to their employees, of commissioned based 457(b)/403(b) investments. 2. The employees of public higher education institutions and school districts are allowed to contribute to a 457(b) plan and a 403(b) plan.

Have the Trustees of a 457(b) plan breached their fiduciary duties by hiring the same firm to handle three plan functions----Record keeper, Investment Provider and Plan Administrator?

Is it a statutory requirement to make the direct rollover option available to the plan participant? Please furnish the citation.

David- You are soooooo correct. Best, Joel L. Frank

In its original form the PPA of 2006 mandated that effective January 1, 2009 a governmental plan may NOT credit its members' fixed return accounts with more than a risk free market rate of return. This requirement was repealed in December 2008. I need the legislative language that made the requirement and the language that repealed it. Many Thanks, Joel L. Frank Pension Columnist The Chief-Civil Service Leader 277 Broadway NYC 10007 732-536-9472

All 250,000 NYC employees are eligibile to participate in a 401k plan as well as a 457b plan because an obscure city agency adopted a 401k plan prior to June 1986 and the City later adopted it for use by all of its agencies and instrumentalities. mjb: I am attempting to identify the city agency you refer to. Can you help? Thanks, Joel

All 250,000 NYC employees are eligibile to participate in a 401k plan as well as a 457b plan because an obscure city agency adopted a 401k plan prior to June 1986 and the City later adopted it for use by all of its agencies and instrumentalities. Prior to the Mayor Bloomberg era NYC teachers were excluded. Now this group of employees can choose from three plans: A 403(b) offered by the Teachers' Retirement System of the City of New and a 457(b) and 401(k) offered by the Deferred Compensation Plan of the City of New York. The Deferred Compensation Plan also offers a Roth 401(k) and a Tradtional and Roth IRA program. The State of New York offers just a 457(b) to state employees AND allows local governmental entities like school districts to opt into this no-load program. NO PUBLIC EMPLOYER IN THE STATE SHOULD SPONSOR A COMMISSIONED BASED SALARY REDUCTION RETIREMENT SAVINGS PLAN! Joel L. Frank Pension Columnist The Chief-Civil Service Leader 277 Broadway New York, NY 10007 732-536-9472

If the employer contributes zero to his 457(b) account what is the maximum the employer may contribute to his account?

These state laws were passed prior to the issuance of the new 403(b) regs. Based on these regs if an employer is of the opinion that a single vendor approach is the way to go does that leave the employer wide open to litigation by an employee who feels the state law was violated? Joel

What do you do for a living? And what is the source of your "understanding"?

Twice the current year amount.