What is a 403(b) Plan?
403(b) Plans generally serve as voluntary supplemental retirement savings plans designed to supplement retirement benefits available from State pension plans and Social Security. The IRS provides a Summary of 403(b) Plan Basics page and a 403(b) Plan Brochure for Employees on its website. Additionally, CCC's site offers a page of Education Tutorials and more to familiarize employees with a variety of 403(b) topics.
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What is a 457(b) Plan?
457(b) Plans are supplemental retirement savings plans similar to 403(b) Plans, and are called Deferred Compensation Plans (DCP for short) for state and local government employees (including public school employees). Some public school employers offer 457(b) Plans and others do not. To check if your employer offers a 457(b) Plan click here.
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What are the 403(b) and 457(b) Limits?
403(b) and 457(b) Elective Deferral Limits
Please visit our Contribution Limits Page for complete information on Elective Deferral Limits.
For information on Employer Contributions (where applicable) and the limits that apply, please visit here.
*can not defer amounts to one of the plans and have them count for a prior year).
** Special Catch-ups are subject to eligibility requirements and require evaluation by CCC, please contact us for an evaluation. Note: details on Special Catch-ups are available below and should be reviewed prior to submitting an evaluation request. (Please note: data requests of this nature make take time to fulfill and will be subject to availability.)
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Am I eligible for catch-up contributions?
Catch-up provisions are subject to availability under your employer's plan (please see your employer's page for additional details).
If you are age 50 or over by the end of the current year, you are eligible to use the Age 50 Catch-up (if this catch-up is available under your employer's 403(b) and/or 457(b) plan document).
Special Catch-ups may be available in the 403(b) and 457(b) plan. These catch-ups are subject to complex eligibility requirements and require evaluation by CCC, please contact us for an evaluation. (Please note: data requests of this nature make take time to fulfill and will be subject to availability. These evaluations (Please note: data requests of this nature make take time to fulfill and will be subject to availability. CCC fully documents these evaluations for IRS audit purposes.) Below is more information on the special catch-ups:
- The 403(b) plans the Special Catch-up is called the "15 Years of Service Catch-up." You must have at least 15 years of full time service with your current employer by the end of the current calendar year and have contributed an average of less than $5000 per year of service to the 403(b) plan, you may be eligible additional amounts under the 403(b) 15 Years of Service Catch-up (if available under your employer's 403(b) plan). The IRS requirements for use of 15 Years of Service Catch-up require complete historical data to evaluate eligibility and, if eligible, determine the final amount available under the catch-up.
- For 457(b) plans the Special Catch-up is called the "3 Year Catch-up." If this year is one of the last three years before your normal retirement year you may be eligible for the 3 Year Catch-up (if available under your employer's 457(b) plan). The IRS requirements for use of 3 Year Catch-up require complete historical data to evaluate eligibility and, if eligible, determine the final amount available under the catch-up.
Click here for more details concerning contribution limits.
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Are my deferral limits to the 403(b) and/or 457(b) plan impacted by my participation in other retirement plans?
Contribution limits are tax payer specific and sometimes have aggregation requirements with different plan types.
403(b) Elective Deferral Limits (contributions you elect to defer from your pay) apply to your total deferrals to all 403(b), 401(k), SIMPLE IRA and SARSEP plans in which you participate.
457(b) plans, however, do not have an aggregation requirement with other plans.
More information is available on the IRS website here.
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Do 403(b) or 457(b) contributions effect IRA contributions and vice versa?
Your contributions to an IRA (Traditional or Roth) will not reduce the amount you may contribute to a 403(b) or 457(b) plan. However, 403(b) plans do have aggregation requirements with any other 403(b), 401(k), SIMPLE IRA, and/or SARSEP plan the employee may participate defer to under any employer. 457(b) Plan deferrals do not have this aggregation requirement
IRA contributions and interactions with the 403(b) or 457(b) plan depends entirely on upon if it a Roth (after tax) IRA or Traditional (pre-tax) IRA and if we are talking about the 403(b) or the 457(b) plan. Below is some helpful for your consideration and review with your tax and/or financial professional.
Contributions to a Roth (after tax) IRA are unaffected by 403(b) or 457(b) contributions. Roth IRA contribution limits are subject to Adjusted Growth Income thresholds but they are not tied to coverage by an employer-sponsored retirement plan.
For a Traditional (pre-tax) IRA, your ability to deduct those contributions may be reduced or eliminated if you or your spouse participate in a retirement plan at work (including a 403(b) plan or pension plan). Note participation in a 457(b) Plan does not affect the deductibility of the employee’s Traditional IRA contribution.
More information on this can be found at the following IRS pages
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When should I expect my 403(b) deferrals to be deposited to my account?
Funds deferred to a 403(b) account are considered to be deposited in a timely manner if made by the 15th business day of the month following deferral (generally this is sometime between the 20th-24th, depending on the month and holidays). You will generally find that your deposit will be faster than this.
Please note: It is your responsibility as a participant to monitor your account for not only to verify the deferral deposits but also to make sure they are coded appropriately (pre-tax or Roth) in your account and to alert CCC or you employer of any potential issues so it may be corrected as soon as possible.
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Differences between 403(b) and 457(b) Plans
Response: There are several differences between 403(b) plans and 457(b) plans.
- Many employers have 403(b) plans with a wide variety of vendors each with a wide variety of investment product choices, but generally 457(b) plans generally offer fewer vendor choices and a more streamlined product choices.
- Distribution restrictions are different. 403(b) accounts are distributable at age 59.5 or severance from employment, while 457(b)accounts maybe limited withdrawal at severance from employment. There are hardship distributions available in 403(b) for specific circumstances, but in a 457(b) plan the is a withdrawal available for unforeseen emergencies.
- Early withdrawal penalty (commonly known as "72(t) penalties”, the 10% early withdrawal penalty) is applicable to 403(b) plans but not applicable to 457(b) plans).
- The catch-ups available differ. While both plan types offer Age 50 catch ups, each has a special catch-ups. The 403(b) Plan has a 15 years of Service Catch-up and the 457(b) plan has a 3 Year Catch-up which may be available in the 3 year prior to the year of retirement. Note that both the 15 Years of Service and the 3 Year Catch-up are subject to eligibility requirements.
- The limitations in the plans types differ. Employee deferrals and employee contributions in a 457(b) plan must be aggregated for consideration of the Basic Elective Deferral Limit for the year plus the Age 50 Catch-up if eligible, whereas the employee deferrals in a 403(b) plan are subject to the Basic Elective Deferral Limit for the year plus the Age 50 Catch-up if eligible while the combination of employee deferrals and employer contributions to a 403(b) plan are subject to a much much higher limit called the limit on Annual Additions).
- FICA must be paid on 457(b) employer contributions but not on 403(b) employer contributions.
Note: The availability of certain catch-ups, distribution types, and contributions types available under each plan type are subject to the rules in the applicable Plan Document, vendor annuity contract, and/or custodial contract.
Additional information is available at the following links:
Here are the links to IRS limit information for 403(b) and 457(b) plans:
Please feel free to contact CCC if you have any questions, any member of our staff will be happy to assist you.
What are Roth contributions?
Roth contributions and, unlike Traditional 403(b) or 457(b) elective deferral contributions, are subject to Federal and State income tax withholdings (also referred to as after-tax deferrals). The distribution of an employee's contributions to a Roth 403(b) or 457(b) account are not taxable at distribution, since taxes were paid on the contributions to the account in the year they were deferred. If a distribution from a Roth 403(b) account is "qualified", the gains on the account are also distributed tax-free. For a distribution from a Roth 403(b) account to be “qualified,” it must meet two conditions:
- Payment must be made after age 59 ½, disability, or death, and
- The Section 403(b) account must have been in existence at least five
taxable years (i.e., calendar years).
Termination of employment before age 59 ½, disability, or death does not
trigger a qualified distribution. In such an event, to qualify for a
tax-free distribution, the employee will either need to leave the Roth
account in the Section 403(b) program until age 59 ½ or roll it over to a
Roth IRA, a designated Roth 401(k) account, a designated Roth governmental
457(b) account, or another designated Roth 403(b) account.
To check if your employer offers Roth Contributions as a feature under their Plan(s), and to see which vendors(if applicable) offer Roth accounts, click here.
Useful Roth Contribution Links
You may find it helpful to review some of the websites listed below.
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What are my rollover options and the taxation involved once I have obtained a qualifying event for distribution?
Once a qualifying event* has occurred, a participant may choose to either a taxable distribution to themselves or to roll the funds to another eligible retirement account. Most vendors provide a "special tax notice" that describes the various rollover options and taxation associated with the options as a part of, or addendum to, the vendor's distribution and rollover forms. Usually the participant's authorization section of one of these forms requires the participant to attest to the fact they have read the notice pertaining to taxation and understand the applicable tax consequences of the transaction they are submitting.
(Please note: the IRS provided generic model language for 402(f) Notice in 2009 (Notice 2009-68), this model language is viewable here.) CCC strongly encourages participants to seek the advice of a qualified and trusted financial advisor and/or tax consultant concerning investment and distribution choices.
In the 403(b) plans, the most common events for distribution are attainment of Age 59.5 or Severance from Employment. In 457(b) Plans the most common events for distribution is Severance from Employment. *More transaction information is available here.
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When am I considered "severed from employment" as it pertains to my 403(b) or 457(b) account(s)?
Severance is defined as a complete severance from any employment relationship with the Employer sponsoring the 403(b) and/or 457(b) plan.
CCC has created guidance for employers to determine if an employee meets the criteria to be considered "severed from employment". This document is available here.
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My employer is offering a post-severance Early Retirement Incentive (ERI) program. If I decide to participate, will I have the option to defer any portion of these payments into my 403(b) or 457(b) accounts?
No, post-severance deferrals from ERI stipends are not allowed.
Employers considering an ERI program, please contact CCC as the rules concerning these programs are complex and failure to appropriately set up this program may have unintended consequences.
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Can I take a hardship withdrawal from my 403(b) account?
Hardship Distributions are only available under certain circumstances and require documentation. Note: hardship transactions are subject to availability under your employer's plan (please see your employer's page for additional details). Please visit our Hardships page for details.
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I have received a check from my investment provider (or parent entity) that is payable to my Employer pertaining to a legal settlement. What should I do with this check?
Some of these checks appear to be payable to the Employer with no mention of the Employee, while others appear to be payable to the Employer for the benefit of the Employee. The best information available on this issue may be found on the settlement administrator's website or by calling the settlement administrator's service center, this information should appear in the letter or check stub that accompanied the check you received.
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Where do I go for investment advice?
Financial goals are highly individualized, as are your basic financial skills and experiences. It's up to you to decide whether or not to seek the services of a professional financial advisor or to seek a do-it-yourself investment option without the aid of a financial professional. Should decide to seek a financial advisor, the following links provide helpful information to help in your selection process.
Information on local advisors working in your employer's plan can be found by visiting the 403(b) Vendor List page and clicking the vendor links to access advisors who market that vendor's products locally. Participants are not generally limited to working with the advisors listed, however, it is important to note that the vendors providing investment products in a given plan are limited to the Active 403(b) Payroll Slot Vendors.
Note: CCC does not provide investment advice or market investment products.
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Does PERS affect my 403(b) or 457(b) contributions?
The general answer is no. You are allowed to contribute right up to your elective deferral limit into either or both of the 403(b) and 457(b) plans, irrespective of employee and employer PERS contributions.
The only situations in which PERS contributions impact your ability to contribute to 403(b) and/or 457(b) plans is when your gross salary is fairly low. Since contributions are limited to 100% of compensation, if employee PERS contributions are pre-tax salary deductions, they reduce your compensation. Consequently, they reduce the amount you can contribute to the 403(b) and/or 457(b) plans.
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What is the process to add a provider to my employer's list of vendors?
The process for adding a "provider" (our terminology is "Vendor with an Active Payroll Slot") may be found in your employer's 403(b) Plan Document, available by selecting your employer on our home page.
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Can I move 403(b) funds to another Vendor? to an IRA?
If contract exchanges are allowed under your employer's plan, 403(b) funds can be exchanged with and to an eligible 403(b) vendor in your employer's plan. Rollovers out of the plan to another eligible retirement account (such as an IRA) are only possible if you are eligible for a distribution, typically by attaining age 59-1/2 or severing employment depending on the rules of your employer's plan. More transaction information is available here.
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Is it possible to use my 403(b)/457(b) account to purchase pension plan Permissive Service Credit?
The answer is yes in the States of Oregon and Washington, provided the employer's 403(b) or 457(b) plan document allows for Permissive Service Credit Transfers. Please note: Permissive Service Credit Transfers require Plan Administrative Approval, to issue the approval a copy of documentation issued by the State Retirement Plan documenting the exact dollar amount required for the purchase of service or waiting time is required. More transaction information is available here.
Additional background information on Permissive Service Credit Transfers can be found here. Also see Oregon Senate Bill 399 and Revised Code of Washington (RCW) 41.32.066 for relevant documentation.
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I have received a package of corrective distribution documents from CCC. Please explain?
One service CCC provides to employers is testing contribution limits and assisting employees in the timely correction of excess contribution when they occur, the packet of information you received describes how that correction is taking place and what you need to do as a result. It is critical you follow any instructions provided, keep the communication with your tax records, and contact CCC with questions.
A timely correction of as excess deferral via a "corrective distribution" is one that occurs before April 15th for an excess that took place in the prior year. For instance, a 2018 excess must be distributed + or- gains or losses before April 15, 2019. In that example the excess must be claimed as 2018 taxable income (the year the over-contribution occurred) while the gains, if any, are claimed on the taxes for the year the distribution was received (2019). The vendor will issue a 1099 at the end of the year the distribution took place with a box-code that indicates to the IRS the distribution was attributable to a corrective distribution for the prior tax year.
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Are my 403(b) and/or 457(b) elective deferrals subject to FICA (Medicare and Social Security) withholdings?
Yes. Employee contributions to both 403(b) and 457(b) plans are subject to FICA withholdings.
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