1. Dave Zahller Regional Vice President Security Benefit Why a 457 Plan may be the Right Choice for Your District 38-10710-01 2013/03/25

2. Introductions Dave Zahller Regional Vice President Security Benefit 2

3. 457 Plans 457 and 403(b) Plans: Similarities/Differences Plan Administration Roth Options 3 Agenda

4. 457 Plans 4 457 and 403(b) Plans: Similarities/Differences Plan Administration Roth Options

5. Political Subdivisions, “Governmental” –States –Cities –Counties –Special Districts –School Districts 5 457 Plans Defining the 457 Marketplace

6. A voluntary, supplemental retirement plan available on a pre-tax basis through payroll deduction Like your 403(b) plan, is exempt from ERISA 6 457 Plans What is a 457 Plan?

7. Started by private letter ruling 1973 - Lompoc, CA Section 457(b) implemented 01/01/1979 EGTRRA of 2001 repealed the coordination of 403(b) and 457 Plan Salary Deferrals making it possible for school districts to implement 457 plans in addition to their 403(b) programs Known as “deferred compensation” because the employer retains ownership of the assets until distribution Plan assets held in trust for exclusive benefit of employee or beneficiaries 7 457 Plans History

8. Typically a “group” plan structure Unlike “qualified” plans, a 457 plan has no age requirements or penalties for distribution May have a loan provision Assets available at Retirement Termination of employment Financial Hardship Distributions taxed as “ordinary income” in the year of receipt 8 457 Plans Features and Benefits Source: http://www.irs.gov/Retirement-Plans/IRC-457(b)-Deferred-Compensation-Plans

9. Schools districts may offer both a 457(b) and a 403(b) Offering both allows employees to defer maximum amounts into each plan Defer up to $17,500 into a 457(b) and up to $17,500 into a 403(b) for a total of $35,000 (in 2013) Age 50 catch-up is an additional $5,500 for a total of $44,000 (in 2013) Other catch-up provisions may be available 9 457 Plans Features and Benefits Source: http://www.irs.gov/Retirement-Plans/IRC-457(b)-Deferred-Compensation-Plans

10. 457 Plans 10 Plan Administration 457 and 403(b) Roth 457 and 403(b) Plans: Similarities/Differences

11. A written Plan Document is required 403(b) written plan is required - dated (or amended) on or after January 1, 2009 Contributions are made with (employee or employer) pre- tax dollars through payroll deduction Contribution limits are the same 2013 limit is $17,500 or 100% of salary Age 50+ catch-up provision allows an additional $5,500 Loan provision available (by plan authorization) Roth provisions were made available January 1, 2011 (by plan authorization) Employee must begin taking minimum distributions in the year that they reaches age 70 ½ unless still employed 11 457 and 403(b) Plans Plan Similarities

12. 457 plans are typically “group” plans Employer retains control of provider(s) selection and may change providers at will, transferring plan assets to new provider Annuities and mutual funds (custodial accounts) are eligible 403(b) accounts have traditionally been individual contracts between the employee and provider No employer involvement in supervising plan prior to regulation changes in 2009 Annuities and mutual funds (custodial accounts) are eligible Some school districts are adopting a group 403(b) structure as a result of the 2009 regulations 12 457 and 403(b) Plans Plan Structure

13. “Special” catch-up options 457(b) catch-up may be used three years before “normal retirement age” as specified by the plan All unused amounts in prior years of eligibility, up to an additional $16,500 per year for three consecutive years 403(b) 15 years of service catch-up maximum is $3,000 per year to a life-time maximum of $15,000 13 457 and 403(b) Plans Plan Differences

14. Hardship and emergency access to account assets 457(b) terminology: “unforeseeable emergency” Taxable if pre-tax dollars Clearly defined IRS guidelines 403(b) terminology: “hardship withdrawal” Allowed only when all other resources have been exhausted May be subject to a 10% IRS early withdrawal penalty Taxable if pre-tax dollars 14 457 and 403(b) Plans Plan Differences

15. 457 Plans 15 457 and 403(b) Roth Plan Administration 457 and 403(b) Plans: Similarities/Differences

16. 1.Pass a resolution establishing a 457(b) plan 2.Appoint a “Plan Administrator” 3.Establish plan administration procedures or delegate plan administration to a vendor providing investments 4.(Best practice) Educate your employees 16 Plan Administration Implementing a 457 plan

17. Document must contain all terms and conditions for eligibility, benefits, limits, the contract’s availability under the plan, and time and form under which benefit distributions would be made Any changes and amendments to the plan or the way the plan is operated should be communicated to all participants Plan Documents are typically provided and kept up to date by the investment provider Plan Administration Written Plan Document

18. Others ways of educating employees on the benefits of participating in a 457 plan Work with provider(s) to structure quarterly seminars on a range of retirement planning topics Benefit fairs (providers participate) Provide individual packets of information Open enrollment (providers on-site) District newsletters Email Website links 18 Plan Administration Educating Employees

19. What is your district’s participation rate? Prior to new regs (2008) typical rate was 33% Average rate now 20% Economy Employees with orphaned plans didn’t choose to continue with approved providers Why is a higher participation rate important? Indicates compliance with Universal Availability rule “Best practices” fiduciary responsibility is illustrated Increased participation correlates directly to the ability of employees to retire on-time, reducing costs to district 19 Plan Administration Participation

20. Controlling providers benefits your employees Limit the number of advisors that have access to the district and its’ employees Limit a maximum of three reps per provider District policy should grant access to all sites as approved by administration 20 Plan Administration Providers

21. 457 Plans Plan Administration 21 457 and 403(b) Roth 457 and 403(b) Plans: Similarities/Differences

22. 457 and 403(b) Roth 457 Roth Effective January 1, 2011 Roth contributions are allowed within 457 plans Must be adopted by the Governing Board Plan Document must be amended to include 457 Roth contributions are made after-tax 457 Roth earnings are tax-deferred Upon severance from employment, 457 Roth distributions may be tax-free 22

23. Summary School districts can offer a 457 plan exclusively or in tandem with a 403(b) plan 457 Plan withdrawals are available to any time after severance from employment are never subject to the IRS 10% premature distribution If participants change jobs they have the flexibility to move their accounts into their new employers retirement plan or into an IRA ROTH option is allowed 23

24. Summary Employees can defer the maximum elective deferral limits into both a 403 and 457 including catch up amounts Adding a 457 option is an attractive recruiting tool for all potential employees 457 plans have no universal availability requirements, which is very different from a 403(b) plan. This can help reduce your plan administration burden Out of the IRS Spotlight 24

25. Questions? 25

26. Contact Dave Zahller 866.573.044 dave.zahller@securitybenefit.com 26 Services offered through Security Distributors, Inc., a subsidiary of Security Benefit Corporation (Security Benefit). Security Benefit is indirectly controlled by Guggenheim Partners, LLC.