Thoughts on 457 plans

[Jcm800]

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Regarding the 457 question, if it's from a governmental organization than it's probably worth it. If it's from a non-governmental employer then you should check the employer's credit rating. If their Moody's rating begins with an A, the plan offers decent distribution options, and you are OK with a little bit of risk, then it may be worth partaking in it.



I agree that physicians are sheep in many ways. Not getting a COLA isn't one of them. You cannot get blood from a stone. If you really wanted to put some energy into some things that would actually change the playing field that keeps physician wages relatively stagnant you could start by lobby with your congressman to 1) reform the Stark laws 2) raise the bar on minimum required insurance payments each year 3) create a law requiring every physician to be able to see the yearly sum total of charges billed in their name by their employer. There are many more ways to appropriately increase physician pay, but those would be a good start. Or you could go cash only and have a much higher chance of success.

Valid point about credit rating, but My concern lies less in The credit rating of my institution and more in the fact that it’s likely to be acquired, much like all hospital systems, by even larger hospital system eventually. Now if it’s acquired in good standing, of course that’s not an issue. however my suspicions are, in the next five years we’re going to see major competition between hospital systems as they try to starve out each other, and thereforeAttempt to bankrupt competing hospital systems. This is my concern. While my employer today is quite robust in its financial status, my concern is for the minimal gain, is that the risk is not worth it. But I could be wrong. That’s why I posed the original question. however it seems like most people unless they are governmental 457 plans, are a little skittish. Like me.

 

[SSdoc33]

Valid point about credit rating, but My concern lies less in The credit rating of my institution and more in the fact that it’s likely to be acquired, much like all hospital systems, by even larger hospital system eventually. Now if it’s acquired in good standing, of course that’s not an issue. however my suspicions are, in the next five years we’re going to see major competition between hospital systems as they try to starve out each other, and thereforeAttempt to bankrupt competing hospital systems. This is my concern. While my employer today is quite robust in its financial status, my concern is for the minimal gain, is that the risk is not worth it. But I could be wrong. That’s why I posed the original question. however it seems like most people unless they are governmental 457 plans, are a little skittish. Like me.

i dont know. any way to put away money pre-tax is a win. id max out the 457. i cant imagine the money just evaporates even if your financial institution gets bought out of goes belly-up. i suppose its possible , but you should probably look for a precedent.

 

[DOctorJay]

I wonder if it’s just the principal amount that can be taken away in bankruptcy or the principal plus the interest you earned.

If it’s just the principal it may be worth the gamble to invest aggressively (VTSAX or small cap or mid cap index funds).

If it’s the entire amount of principal and interest maybe you just make this your bond allocation (as long as it fits your asset allocation percentages).

I’m in a large hospital network with a solid bond rating that is building and gobbling up smaller hospitals so I do feel fairly safe putting my money in the 457 for the additional tax benefit.


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[au bon pain]

Valid point about credit rating, but My concern lies less in The credit rating of my institution and more in the fact that it’s likely to be acquired, much like all hospital systems, by even larger hospital system eventually. Now if it’s acquired in good standing, of course that’s not an issue. however my suspicions are, in the next five years we’re going to see major competition between hospital systems as they try to starve out each other, and thereforeAttempt to bankrupt competing hospital systems. This is my concern. While my employer today is quite robust in its financial status, my concern is for the minimal gain, is that the risk is not worth it. But I could be wrong. That’s why I posed the original question. however it seems like most people unless they are governmental 457 plans, are a little skittish. Like me.

Yeah if you’re very risk averse and/or don’t have faith in the longevity of your employer than I think that’s a reasonable point of view. Just aim to contribute an equal amount to a taxable account instead.

Personally, I’m still far from retirement and can afford to be slightly less conservative with investing. After maxing out a 401/403 and a backdoor Roth, I think a solid 457 is a great option. The risk of losing one’s 457 assets during a takeover/acquisition, while not zero, is quite small:

Are 457(b) Plan Assets at Risk During an Acquisition? | PLANSPONSOR

“We are a private tax-exempt hospital that sponsors a 457(b) plan for select management or highly compensated employees. Though all participants have been informed of the credit risk in the event of insolvency and are comfortable with that, one employee recently posed a question that was...

www.plansponsor.com

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[Jcm800]

Yeah if you’re very risk averse and/or don’t have faith in the longevity of your employer than I think that’s a reasonable point of view. Just aim to contribute an equal amount to a taxable account instead.

Personally, I’m still far from retirement and can afford to be slightly less conservative with investing. After maxing out a 401/403 and a backdoor Roth, I think a solid 457 is a great option. The risk of losing one’s 457 assets during a takeover/acquisition, while not zero, is quite small:

Are 457(b) Plan Assets at Risk During an Acquisition? | PLANSPONSOR

“We are a private tax-exempt hospital that sponsors a 457(b) plan for select management or highly compensated employees. Though all participants have been informed of the credit risk in the event of insolvency and are comfortable with that, one employee recently posed a question that was...

www.plansponsor.com

Sent from my iPhone using SDN mobile

If I was older, I could also find a better justification because you could access these funds first.

 

[Gauss]

I am scared to invest in mine as it is not creditor protected, only transferable to other Institutional 457 plans. And I expect all of healthcare to essentially fold in 15 years. So I don’t find it. I max my 403b and get the max, but have just avoided the 457. Thoughts, oh financial gurus?

couple of ideas - if you have an old 457, ideally government or academic center, you can roll the new one into it. you can also transfer it to a TIRA or Roth (taxes will apply). FWIW taxable>>>annuity, that's as far as I got into this thread until it went off the rails

 

[au bon pain]

If I was older, I could also find a better justification because you could access these funds first.

Should you separate from your employer and don't have an option to roll into another 457, your 457 can be payed out to you at that time without penalty. At least my hospital's plan allows for that. You should check with your plan's rules on this.

While it's not unwise to do this closer to retirement, if your entry into a 457 at that time is an integral part of your retirement plan then you still risk losing that cash when it'll be hardest for you to replace. Think of it along the lines of more time in the market pays better than trying to time the market. The reality is that if you put the same amount of cash every year into a taxable account as you could into a 457 you'll be probably be fine either way. It sounds though like you don't want to hit up the 457 though, so you probably shouldn't.

 

[Jcm800]

Should you separate from your employer and don't have an option to roll into another 457, your 457 can be payed out to you at that time without penalty. At least my hospital's plan allows for that. You should check with your plan's rules on this.

While it's not unwise to do this closer to retirement, if your entry into a 457 at that time is an integral part of your retirement plan then you still risk losing that cash when it'll be hardest for you to replace. Think of it along the lines of more time in the market pays better than trying to time the market. The reality is that if you put the same amount of cash every year into a taxable account as you could into a 457 you'll be probably be fine either way. It sounds though like you don't want to hit up the 457 though, so you probably shouldn't.

I definitely contribute the max amount that I would put in the 457. I definitely contribute the max amount that I would put in the 457 Into a post tax account. So it’s invested. I’m just wondering about whether I am passing up unnecessarily the tax free benefits Due to my potentially irrational position.

My understanding is if I leave this employer, I can only roll this over to another non-governmental 457 plan. And if I try to take it early I will pay the penalty

 

[au bon pain]

I definitely contribute the max amount that I would put in the 457. I definitely contribute the max amount that I would put in the 457 Into a post tax account. So it’s invested. I’m just wondering about whether I am passing up unnecessarily the tax free benefits Due to my potentially irrational position.

My understanding is if I leave this employer, I can only roll this over to another non-governmental 457 plan. And if I try to take it early I will pay the penalty

That's excellent to hear.

If it's a 457b, there is no penalty for accessing the money early if you separate from your job.

 

[Jcm800]

That's excellent to hear.

If it's a 457b, there is no penalty for accessing the money early if you separate from your job.

I will look more into this. I could be wrong. Thanks!

 

[Jcm800]

I will look more into this. I could be wrong. Thanks!

Yeah I was wrong. I can withdraw from it, with no penalty, I just have to pay the taxes... maybe I’ll partially fund it. And if I leave the employer, I’ll pull it out, I guess no harm there... or leave it in provided the company remains stable and solvent, until 59.5, then yank it out first. Good for thought. Thanks

 

[clubdeac]

Yeah I was wrong. I can withdraw from it, with no penalty, I just have to pay the taxes... maybe I’ll partially fund it. And if I leave the employer, I’ll pull it out, I guess no harm there... or leave it in provided the company remains stable and solvent, until 59.5, then yank it out first. Good for thought. Thanks

I thought I was told one of the major differences, at least with our 457b, is that if you leave the company you only have so many years to withdrawal the money. Like you can't wait an indefinite amount of time until you retire.

 

[DOctorJay]

I thought I was told one of the major differences, at least with our 457b, is that if you leave the company you only have so many years to withdrawal the money. Like you can't wait an indefinite amount of time until you retire.

yeah this stuff is all spelled out in the plan. you may have to take a lump sum or some places will let you spread it out over 5 or 10 years. gotta look at the documentation.

 

[au bon pain]

yeah this stuff is all spelled out in the plan. you may have to take a lump sum or some places will let you spread it out over 5 or 10 years. gotta look at the documentation.

Yup exactly. Some will allow you to request a different option than a lump-sum payout upon separation or defer payment for a bit. Devil is in the plan details.


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[Gauss]

I thought I was told one of the major differences, at least with our 457b, is that if you leave the company you only have so many years to withdrawal the money. Like you can't wait an indefinite amount of time until you retire.

each plan is different
ours allows you to take lump sum, spread over a couple years, or specify a date you wish to withdraw in the future (i.e when you're 60 or 65 yrs old)

 

[Gauss]

Worth stating here for clarity, for non-governmental 457b the accounts are just an obligation. A governmental 457b is like any qualified plan in that the account assets are held in trust, similar to a 401k plan, so the governmental 457b assets are not subject to claims by the employer's creditors.